But raising venture capital isn't easy. The typical venture capitalist might review 1,000 or so business plans per year and invest in only five or six, according to John Nesheim, author of High Tech Start Up. Worse, a large percentage of companies funded with venture capital either fail or return a meager profit. Start-up companies typically get several rounds of venture capital at different stages of their growth. In recent years, first-round amounts have grown significantly, says Leleux.
Entrepreneurs pay a price for the capital.
While subsequent rounds might raise a larger amount of money, entrepreneurs typically have to give away less of the company because it is more established and, presumably, the risk is far less, according to James Treybig, a partner at Austin Ventures. If the company is successful, venture capitalists can make back several times their initial investments. Venture capital is largely concentrated in a few areas of the country. Entrepreneurs may find that there's more than just a financial advantage to being located in an area where venture capital is plentiful. Typically, venture capitalists will take a seat on the company's board of directors and will consult regularly about strategy, market conditions and other dynamics of growing the company's profits.