What is a Venture Capitalist?
Written by True Tamplin, BSc, CEPF®
Updated on January 11, 2021
Venture Capitalist Definition
A Venture Capitalist is a private investor that provides early capital to new companies that exhibit a strong potential for growth and success.
This is typically in exchange for a significant equity stake.
Venture Capitalists can provide funding for startups or small businesses in need of capital that do not have access to equities markets because the companies are too new.
The projects they invest in are usually high risk / high reward ventures.
As such they are unappealing investments to most investors, especially those who are risk averse, but prime targets for venture capitalists who are willing to accept a greater risk for a potentially greater payout.
What Does a Venture Capitalist Do?
Venture capital investors usually come together to create limited partnerships, or LPs, where members contribute to a pool of funds.
These funds will often be overseen by a committee tasked with identifying companies with emerging growth potential, making investment decisions, and deploying investor capital.
Common Misconception About Venture Capitalists
Contrary to popular opinion, venture capitalists do not commonly fund startups from the onset.
Rather, they look for companies that are at the point of preparing to commercialize their idea, when they have the highest potential for growth.
When evaluating a company, venture capitalists look for strong management, a significant potential market, and unique products or services that have a competitive edge.