Many people know about venture capitalists that help provide the funding for startup companies in Silicon Valley and other areas.
In reality, only a small portion of venture capital is directed at seed money for startups. The rest of it is directed at companies in various phases of growth that need capital to fuel a new expansion or to turn their business around.
Venture capital comes from individual investors or venture capital firms who agree to infuse new money into a business in exchange for an equity stake in the business going forward.
The funding is not a loan, which would only have a specific, named return on the investment in the form of interest charged or whatnot, but, instead, the venture capitalists stand to gain potentially unlimited returns if the company or project they are investing in becomes very successful.
Venture capital firms must observe guidelines concerning how much they can invest into each company relative to their overall portfolio, so that they can continue to be categorized as a venture capital firm and not a hedge fund or other pooled investment.
Venture capital tends to go to companies who cannot list themselves on the exchanges, for whatever reason, or they simply do not wish to become publicly traded.
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