Venture capital is money invested in start-up companies to fund the development of new products or services. Generally, sophisticated investors pool the money they are willing to risk and invest it in new companies with a promising technology. In return, venture capitalists receive a stake in each company they help finance.
Venture capital is a speculative investment with high risk and potential high reward.
If the start-up company succeeds and prospers, the venture capitalists who backed it realize a profit, occasionally a very substantial one. Of course, many venture-backed companies will fail, and that can mean significant loss of capital. According to industry analysts, at least three out of every 10 start-ups will fail. As many as six may survive and do moderately well in the marketplace. On average, only one in 10 will be hugely successful, but that is often enough to generate attractive returns for the entire portfolio.