venture capital

• Venture capital

  A type of finance offered by a venture capitalist's fund to high-risk high-reward firms in exchange for a share of the business
• High-risk high-reward firms are likely in

  • Research and development phase
  • Introduction phase of the product life cycle
• Venture capital as a long-term source of finance

  • External source coming from outside the business
  • For startup or new businesses, commonly tech firms
• Pros of venture capital:

  1. Makes expansion possible for high-risk firms when traditional lenders like banks are not willing to lend due to the high-risk nature of the investment

  2. Type of equity finance, no need to repay

  3. Reduces personal risks for the original founder of the business by sharing the risk with the venture capital fund

  4. Venture capitalists often provide expertise crucial for business success
• Cons of venture capital

  1. Giving up a share of the business means sharing higher rewards with the venture capitalist fund

  2. Equity finance may lead to loss of control over the business

  3. Venture capitalists aim to exit the deal eventually, usually through selling the business, which may affect the founder's control and decision-making power