First of all, what is venture capital?
Venture capital businesses give funding to early, high-potential, start up businesses. These businesses make their money by owning equity in the companies that they invest in, which usually have a novel technology or business model in high technology industries, like IT or biotechnology. The typical venture capital investment occurs after the seed funding round as the first round of institutional capital to fund growth in the interest of generating a return through an eventual realization event (like a trade sale of the company).
Why is it an attractive industry?
Venture capital is attractive for new businesses without much operating history because they take the reigns when it comes to raising capital in public markets. The businesses that reach out to venture capital services are also typically too small or new to obtain a bank loan or complete a debt offering. Because venture capitalists assume a lot of the risk, the get a lot of control over company decisions, as well as a good portion of the company’s ownership.
Venture Capital is also a good thing because it’s associated with job creation. Out of the 2 million businesses formed in the US, 600-800 get venture capital funding. According to the National Venture Capital Association, 11% of private sector jobs come from venture-backed companies.
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