venture capital

noun

Definition of venture capital 

: capital (such as retained corporate earnings or individual savings) invested or available for investment in the ownership element of new or fresh enterprise

called also risk capital

Keep scrolling for more

Other words from venture capital

venture capitalism noun
venture capitalist noun

Examples of venture capital in a Sentence

Recent Examples on the Web

Now, there are still some financial holdups for venture capital firms seeking to capitalize on this bonanza. Theodore Schleifer, Recode, "What’s so wrong with Silicon Valley investing in sin?," 9 July 2018 Helping to solve an urban problem attracted investment from Urban-X, a collaboration between an automaker, BMW's Mini, and a venture capital firm interested in improving city life, Urban Us. Nicole Zelniker, USA TODAY, "Startup Farmshelf aims to let restaurants, homeowners grow their own veggies," 3 July 2018 Democratic gubernatorial nominee Ben Jealous, the former NAACP president and a partner in a venture capital investment firm, also released three years of tax returns. Luke Broadwater, baltimoresun.com, "As governor, Larry Hogan's real estate business continues to thrive — prompting questions," 13 July 2018 In 2011, a venture capital company backed by the CIA offered to invest in Affectiva. Hiawatha Bray, BostonGlobe.com, "Tech community wrestles over working with government," 13 July 2018 As usual, health care/biotech led the way for venture capital fundraising in San Diego County. Mike Freeman, sandiegouniontribune.com, "Venture capital surges for San Diego County startups in second quarter," 12 July 2018 Over its existence, Accolade has raised $200 million from venture capital firms that include Comcast Ventures, Accretive, Carrick, Cross Creek and Marona Venture Group. Bob Fernandez, Philly.com, "Accolade, with 500 employees in Plymouth Meeting, seeks to boldly cut health costs for big companies," 12 July 2018 Carey, meanwhile, brings private equity and venture capital investing to the table. Montana Couser, The Root, "Howard Grads Do It For the Culture With Homage Hospitality Hotels," 3 July 2018 Between 2013 and 2015, companies owned in part by hedge funds, private equity, or venture capital firms produced 20 of the 25 drugs with the fastest-rising prices. Alexander Zaitchik, The New Republic, "How Big Pharma Was Captured by the One Percent," 28 June 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'venture capital.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

See More

First Known Use of venture capital

1943, in the meaning defined above

Keep scrolling for more

Learn More about venture capital

Share venture capital

Dictionary Entries near venture capital

vent tank

Ventura

venture

venture capital

venturesome

venturi

Venturi

Statistics for venture capital

Last Updated

12 Sep 2018

Look-up Popularity

Time Traveler for venture capital

The first known use of venture capital was in 1943

See more words from the same year

Keep scrolling for more

More Definitions for venture capital

venture capital

noun

Financial Definition of venture capital

What It Is

Venture capital is money for new, young, and/or small businesses that typically have little or no access to capital markets.

How It Works

There are three general types of venture capital: seed capital, for ideas that have not yet come to market; early-stage capital, for companies in their first or second stages of existence; and expansion-stage financing, for companies that need to grow beyond a certain point to become truly successful. Venture capital can also help a company merge with or acquire other companies.

Although some venture capital comes from private individuals, most venture capital comes from venture capital firms. These firms are often partnerships that obtain their investment funds from wealthy individuals, investment banks, endowments, pension funds, insurance companies, various financial institutions, and even corporations wishing to foster new products and technologies.

A venture capital firm must raise the money it needs to make investments in new businesses. This fund-raising is typically done by circulating a prospectus to potential investors who then agree to commit money to the fund. Once the venture firm has enough commitments, the firm may begin collecting or "calling" those commitments when it wants to make an investment. If and when the venture capital firm invests all of the fund's money, or if it simply wants to expand its investing activities, it may start another fund. Most funds have a fixed life, meaning they must make their investments within a certain period (usually about ten years). Venture capital firms may have several funds going at the same time.

The managers of many venture capital funds receive an annual management fee (usually 2% of the invested capital) and a portion of the fund's net profits (typically 20%). These fees compensate the managers for their expertise and the responsibility to help their investments become successful.

Typically, venture capitalists decide which companies to invest in by reviewing hundreds of business plans, meeting entrepreneurs and company managers, and performing extensive due diligence on investment candidates. They are very selective because they are seeking opportunities in which their investments will grow rapidly and provide a successful exit within a certain timeframe. When they do make a decision to invest, venture capital firms typically purchase a company's preferred stock and/or lend money to the company.

One of the most common and controversial characteristics of venture capital funding is that venture capital firms usually take active management roles and board seats in the companies they invest in. This often means that entrepreneurs give some control over their businesses to venture capital firms, who usually own a portion of the company (in some cases, controlling interest). However, venture capital firms can also provide crucial managerial or technical expertise, particularly in areas where the entrepreneur is less confident. This is especially the case when the venture capitalist specializes in the entrepreneur's industry or niche.

An important part of a venture capital investment is the exit, or the venture capital firm's plans for selling its investment in a company. Usually the exit, also known as the harvest, takes place anywhere from three to ten years, often via an initial public offering or through the merger or sale of the company.

Why It Matters

Venture capital is an important and necessary form of investment because it fosters entrepreneurship, especially in high-tech and other innovative industries. This in turn promotes job creation and economic growth. At the investment level, venture capital can be tremendously lucrative because it allows investors to get in at the ground level of what could be some of tomorrow's leading companies.

However, venture capital is not without risk. In fact, it is one of the riskiest investments available because many new companies fail or underperform. Venture capital firms anticipate this by diversifying their investments and hoping that their successful investments more than compensate for their losses. Nonetheless, venture capitalists must be willing to take significant long-term risks for what can be high returns.

Source: Investing Answers

venture capitalist

noun

Financial Definition of venture capitalist

What It Is

Venture capitalists provide funding (called venture capital) to start-up companies which they see as promising investments, but which otherwise are unable to obtain business loans. Venture capitalists are active primarily in the technology sector.

How It Works

Venture capitalists look to invest money in start-up companies which they believe have the potential for high returns. For this reason, venture capitalists grant venture capital generally given two conditions: that they have ownership in the company commensurate with the share of venture capital they provide (often 50% ownership or more); and that they receive a rate of return on their invested money commensurate with the risk.

If the venture capitalist feels that his investment in a company will yield consistent, high returns year after year, he is likely to maintain his share of ownership in the company. In many cases, however, venture capitalists maintain their ownership of a company only until the company is ready to issue an IPO (Initial Public Offering) or be sold to a buyer. In this instance, the venture capitalist sells his ownership for the proceeds from the IPO, or to the buyer as the case may be. This subsequently allows him to take the money he's made and look for new prospective start-up companies in which to invest.

To illustrate, suppose Bob, a venture capitalist, meets with the directors of start-up company XYZ. Having seen XYZ's current operations and long-range business plans, Bob decides to invest $1 million in XYZ. In return, Bob is automatically granted 50% ownership in the company as well as a 25% annual return on the money he has invested in exchange for the risk he knows he is taking. One year later, XYZ has successfully reached a level of productivity and positive cash flow that allows it to survive on its own. The board of directors, along with Bob, decides it would be best to raise funds for continuing expansion through the issuance of an IPO. Bob subsequently receives $1.25 million (the $1 million he initially invested plus the 25% return).

Why It Matters

Venture capitalists can serve start-up companies by readily providing them with funding that a bank might not. The advantage for a start-up company is that this option exists should a loan not be granted. The advantage for a venture capitalist is that by taking a risk and investing in an early stage company, he may gain very lucrative returns on his investment should the company succeed.  A secondary advantage is that he is entitled to an ownership stake in the company and, therefore, a voice in how the company is run.

Source: Investing Answers

venture capital

noun

English Language Learners Definition of venture capital

: money that is used to start a new business

venture capital

Legal Definition of venture capital 

see capital

More from Merriam-Webster on venture capital

Britannica.com: Encyclopedia article about venture capital

Comments on venture capital

What made you want to look up venture capital? Please tell us where you read or heard it (including the quote, if possible).

WORD OF THE DAY

to make amends

Get Word of the Day daily email!

Test Your Vocabulary

Musical Words Quiz

  • gramophone
  • Which word describes a musical performance marked by the absence of instrumental accompaniment?
How Strong Is Your Vocabulary?

Test your vocabulary with our 10-question quiz!

TAKE THE QUIZ
Word Winder's CrossWinder

Test Your Knowledge - and learn some interesting things along the way.

TAKE THE QUIZ

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!