You’ve probably heard the term venture capital thrown around. But what exactly does it mean? What is it and why do entrepreneurs want it so badly?
In the world of Silicon Valley — practically the startup capital of the universe — entrepreneurs and idealists live and breathe “VC.” That’s because venture capital is the cash that launches startups.
Here’s how it works, basically.
Say you’re the founder of a startup. It’s likely that you will need external funding to start, then grow, your company. You need an office, you probably need employees, you need computers. The process of capturing funding just to get your product released is tricky. You have to convince people who have a lot of money that your idea, product or invention is worth investing in — because it’s going to make them even more money.
What is venture capital?
Simply put, capital is money and other resources provided for a new company or for investment. A venture is a risky undertaking, like a startup. Put it together, and venture capital is financial resources provided for startups.
A venture capitalist invests in startups and high-growth companies in exchange for equity, or a share in the company. Often VCs become personally involved in their investments.
Investors provide venture capital to startup companies and small businesses that are believed to have long-term growth potential. Many startups wouldn’t have turned into the behemoths they are today if not for venture capital. (Think: Facebook, Snapchat, Uber.)
Types of funding
There are actually several types of capital:
- Friends and family: The friends and family route is probably the easiest way to get money at first, when your venture is relatively new, and provides an initial injection of cash, usually from people who are somehow connected to the entrepreneurs. These funding rounds can range from $25,000 to $150,000.
- Angel investors: Angel investors are wealthy people who want to invest in businesses and provide…