Capital is invested in exchange for an equity stake in the business ratherthan given as a loan, and the investor hopes the investment will yield abetter-than-average return.
Venture capital is an important source of funding for start-up and othercompanies that have a limited operating history and don’t have accessto capital markets.
A venture capital firm (VC) typically looks for new and small businesseswith a perceived long- term growth potential that will result in a largepayout for investors.
When venture capitalists invest in a business they typically require aseat on the company's board of directors. They tend to take a minorityshare in the company and usually do not take day-to-day control.
Rather, professional venture capitalists act as mentors and aim toprovide support and advice on a range of management, sales andtechnical issues to assist the company to develop its full potential.