Venture Capital

Venture capital (VC) is a form of private equity financing where professional investment firms provide capital to early-stage companies with high growth potential in exchange for equity stakes. VC firms typically invest in startups that are too young, too risky, or too unproven to access traditional bank loans or public markets, but that have the potential for explosive growth — often targeting 10x or greater returns on successful investments.

The VC model operates on a "power law" distribution: most investments fail or return modest amounts, but a small number of massive winners (like early investments in Google, Facebook, or Uber) generate returns large enough to compensate for all the losses and deliver attractive fund-level performance. A typical VC fund might invest in 20-30 companies, expecting 50-60% to fail completely, 20-30% to return 1-3x, and 10-20% to return 10x or more. One company returning 100x can make the entire fund profitable.

VC funding typically follows stages: Seed ($500K-$3M for product development), Series A ($3-15M for market fit), Series B ($15-50M for scaling), and Series C+ ($50M+ for expansion/pre-IPO). At each stage, the company's valuation increases if it meets milestones, but existing shareholders are diluted as new investors buy in. Founders who start with 100% ownership might retain only 15-25% by the time the company goes public.

For individual investors, direct VC investing has historically been limited to accredited investors ($1M+ net worth or $200K+ income). However, newer vehicles like VC-focused ETFs, interval funds, and secondary market platforms have democratized access to some degree. Still, the vast majority of VC returns are captured by top-quartile funds — the difference between top and bottom VC firms is dramatically larger than in public market investing.