Venture capital (VC) is a type of private equity that funds startups and early-stage emerging companies having little to no operating history but a high potential for growth. Earlier, Anand Jayapalan had spoken about how a number of fledgling companies essentially sell ownership stakes to venture capital funds in return for technical support, financing and managerial expertise. VC investors generally take part in the management of the growing company, and help its executives to make smart decisions that drive growth. 

Startup founders generally have a high level of expertise in their chosen line of business. However, they may lack the knowledge and skills needed to cultivate a growing company. On the other hand, VCs specialize in guiding new companies. Portfolio companies to get the opportunity to access the network of partners and experts belonging to the VC. They can also rely on the VC firm for assistance, as they try to raise more funds down the line. 

Venture Capital is a popular form of alternative investment that is typically only available to institutional and accredited investors.  High-net-worth investors (HNWIs), big financial institutions, pension funds and wealth managers are ideally the ones to invest in VC funds. A venture capital firm is an investment company that is responsible for managing venture capital funds and makes the capital from those funds available to discerning startups.

Startups typically approach venture capital firms with the goal of securing the funding they require to launch their business or continue their operations. Subsequent to performing due diligence, the VC firms provide the money to the companies they choose. In return for this funding, the VC firms take an ownership stake that is ideally less than 50% in the startup company. Several VC firms also take an active interest in making sure that the companies they have invested in eventually succeed and become profitable. They do so in several ways, including taking an active interest in sales, distribution, marketing, as well as various aspects of the daily operations of the company. 

Earlier, Anand Jayapalan had spoken about how the goal of VC firms is to increase the value of the startup, then profitability exits the investment either by selling the fund’s stake or through initial public offering (IPO). Venture capital firms offer funding for companies in the early stages of development. There are four key types of players in the venture capital industry:

• Entrepreneurs that start companies and require funding to realize their vision.
• Investors who have the willingness to take on high risk to pursue significant returns.
• Investment bankers who require companies to sell or take public.
• Venture capitalists that profit by creating markets for the entrepreneurs, investors and bankers.

Entrepreneurs wanting capital basically submit their business plans to VC firms with the aim of obtaining funding. In case the VC firm considers the plan to be promising enough, they will proceed to conducting due diligence. This will entail taking a deep dive into many areas vital to assessing the quality of the business and idea. These areas include the business model, product, management, and operating history of the company.