Venture Capital Definition

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on January 11, 2021

Venture Capital Definition

Venture capital (also known as “VC” ) is a form of private equity and financing provided to newer businesses and start-ups with long-term growth potential. 

This capital is provided by investment banks, individual investors, or firms specifically dedicated to venture capital investments. 

The value provided by venture capitalists often extends beyond monetary form, including technical or managerial expertise, as well as their network and other resources.

What is Venture Capital?

Venture capital has become a popular source of initial funding for companies looking to raise capital without the credit, operating history, or collateral to garner a traditional loan from a bank. 

Because these projects are a high-risk, high-reward undertaking, venture capitalists often take a significant stake of the company, often along with a leading role in the activity and operations of the business. 

Prior to investing, venture capitalists perform due diligence, which includes an investigation into the management team, products, history, financial statements, and business model of the venture. 

The TV show “Shark Tank”is a popular example of venture capital investing.

Stages of Venture Capital Funding

There are multiple stages of venture capital funding. 

The stage of funding is directly correlated to the progression and maturity of a venture—from just an idea to nearly ready for an IPO

While amounts and rounds of funding change over time and by industry, here is a helpful list of rounds along with a typical amount raised.

  • Pre-Seed Stage/Friends and Family Round: Usually <$50k
  • Angel Investors: Usually 25k-100k
  • Seed Stage: Often $500k – $2 MM
  • Round 1/Series A: Often $2-15 MM
  • Round 2/Series B: Often $10-30 MM
  • Round 3/Series C: Often $20-50 MM
  • Mezzanine/Pre-IPO (Varies)

*Recent valuations continue to grow, particularly within the tech sector. These values are provided to give our readers a rough estimate while actual values vary greatly.

Venture Capital FAQs

VC stands for Venture Capital.
Venture capital (also known as “VC”) is a form of private equity and financing provided to newer businesses and start-ups with long-term growth potential.
This capital is provided by investment banks, individual investors, or firms specifically dedicated to venture capital investments.
Venture capital has become a popular source of initial funding for companies looking to raise capital without the credit, operating history, or collateral to garner a traditional loan from a bank.