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What is the Venture Capital Market?

Jim B.
By Jim B.
Updated May 17, 2024
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The venture capital market refers to the process by which individuals or groups invest directly in companies that are just starting up operations. These companies are often in need of capital to build their business, and they reach out to venture capitalists to secure that capital. Investors in the venture capital market often have some measure of influence over the companies in which they invest. Such investors gain their profits if the start-up companies make a big dent in the market and either go public or are resold.

Most people think of investing in terms of people putting their money in companies via the stock market and buying and selling shares of these public entities. There are those investors with a certain amount of financial clout who desire a more active type of investment, preferring to invest in companies that may have just begun operations but have the potential for much bigger things. These private companies and investors become connected via the venture capital market.

Start-up companies that seek out investors must be willing to cede some control over their operations if they wish to take advantage of the venture capital market. In return for the money that they put into the company, investors often have the right to make decisions on the future of the company. They might even gain seats on the company's board of directors or have hiring and firing power for key executives.

For an individual investor, the easiest way to get involved in the venture capital market is through investment firms that pool investments from multiple sources and look for companies that require venture capital. These firms are managed by experts in the venture capital process and usually require a minimum investment from those wishing to be involved. Such investment firms use their expertise in the market to seek out companies who may have what it takes to succeed on a higher level.

Of course, there is no guarantee that these companies, which often have little or no track record, will succeed. This reality makes the venture capital market a particularly risky one, especially considering the huge amounts of capital changing hands. The ideal situation for an investor is if one of these young companies manages to grab a big portion of its particular sector of the market. When that occurs, the investor can profit from the company being resold at a premium or by the company going public via an initial public offering.

WiseGEEK is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

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