Venture capital

Venture capitalists use the capital they raise to invest in businesses with high growth potential or businesses that have already demonstrated impressive growth. There are various stages of venture capital funding that reflect the different phases of a company’s development. As start ups grow, they’ll often go through these stages and raise several rounds of venture capital financing.

Some VC firms have a diversified approach and invest in companies at various stages of the business lifecycle, while others focus specifically on certain stages. For example, seed stage investors help early-stage start-ups get off the ground, while late stage investors help established companies continue their expansion. With venture capital financing, businesses can often obtain large amounts of capital.

Venture capitalists are best known for financing technology companies because of their tendency to scale easily, but they invest in non-tech businesses too. What all venture-backed businesses have in common is that they’re oriented towards rapid and significant growth.

Venture capital is most suitable for entrepreneurs with big ambitions who don’t need to retain full control of the company as it grows.

As with any type of investment, there are always advantages and disadvantages to consider before deciding if it's the right path for you.

Here are a few things entrepreneurs should consider when exploring venture capital.

The advantages:

1. Opens doors: venture capital can offer early-stage funding to start ups who may not have access to traditional financing options like bank loans. It gives entrepreneurs access to the capital needed to launch and grow their business.
2. Expertise and guidance: venture capitalists bring valuable industry knowledge, experience, and networks to the table. They can provide strategic guidance, mentorship, and connections to help entrepreneurs scale their businesses more effectively.
3. Credibility: securing venture capital can enhance the credibility of a new business. It signals to other investors, customers, and potential partners that the business has undergone rigorous due diligence and is backed by experienced investors.
4. Accelerated growth: venture capital enables rapid growth through expanding operations, hiring talent, developing products and entering new markets. 

Considerations for founders:

1. Sharing control: venture capitalists will have equity in your company in exchange for their investment. Depending on the terms, you may have to share decision-making power and control with investors, but this could also be a positive if they bring experience and knowledge.
2. Exit planning: venture capitalists will want to know how they will exit the business and will expect a significant return on their investment in that timeframe; something you need to think about before you start the process.
3. Ownership: as a business raises multiple rounds of venture capital, the ownership stake of the founding team can become diluted. This means that founders may own a smaller percentage of the company over time, potentially reducing their ultimate financial gain if the business succeeds.

Unlike angel investors who use their own money to invest, venture capitalists most commonly work for venture capital firms which raise funds from outside investors. These investors, known as limited partners, can include high net worth individuals, family offices, and institutional investors such as pension funds and insurance companies.