What is venture capital?

Venture capital is a form of private equity financing in which investors provide funding to early-stage, high-growth companies in exchange for equity ownership, with returns generated if and when those companies are acquired or go public.

Unlike debt investments, where returns come from interest payments regardless of business performance, venture capital returns depend entirely on the future value of the company. The model accepts a high rate of investment failure as a structural feature; a small number of exceptional outcomes are expected to more than offset losses from investments that do not work out.

Venture capital has historically been accessible only to institutional investors or high-net-worth individuals. Registered fund structures under the Investment Company Act of 1940 have begun to change this, allowing non-accredited investors to access diversified portfolios of private technology and growth-stage companies.