Venture capital can be defined as a financial investment that is put into a risky project with the aim of earning a high rate of return. Venture capital firms offer risk capital to the entrepreneurs. They also take an active interest in guiding start-ups. Features of venture capital are:
High degrees of risk
As said earlier, venture capital represents a monetary investment in a highly risk venture with the aim of earning a high rate of return.
Invariably, venture capital financing is potential or actual equity participation. The venture capitalist’s objective is to make a profit by selling their shares once the start-up or company becomes profitable.
Long Term Investment:
Venture capitalists finance a project for a long period. It takes several years to encash the investment in securities made by VCs.
Participation in Management
Venture capitalists do not only provide capital but also take an active interest in managing the affairs of the assisted firm. Therefore, the approach of venture capital companies is different from that of traditional lenders (banks).