Venture capital is financing that investment firms provide to high-growth startups in exchange for equity, betting on large future returns from a few big winners.
Venture capital (VC) funds early-stage, high-growth companies that are too risky for traditional bank lending. In exchange for capital, VC firms take equity (ownership) and often a board seat, accepting that many investments will fail in the hope that a few succeed spectacularly.
VC funding comes in rounds (seed, Series A, B, and so on), each diluting existing owners further. It suits businesses that can scale rapidly and need significant capital before profitability, but it means giving up ownership and control, a very different path from bootstrapping or debt financing.
A software startup raises a $2 million Series A round from a venture capital firm, giving up 20% equity and a board seat. The capital funds growth for two years, extending its runway toward the next milestone.
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