Like angel investing, venture capital is a type of equity financing that involves giving up a portion of the ownership of business in exchange for money from investors. Venture capital (VC) firms are usually organized as partnerships. They raise money from institutional investors, such as pension funds and endowments, which the VC partners then invest in promising startups. This is a step up from angel investing. VCs can now be found in many areas of the country and a growing number of corporations have created venture investment arms as well, including Google, Dell, General Mills and Walgreens. Some of the biggest names in tech were backed by venture capital, including Google, Facebook and Uber. But overall, a tiny fraction—less than 1%—of all startups receive venture funding.
Although VCs are also focused on early stage companies, they typically are interested in a rarified breed of company—ones with billion-dollar market prospects and the potential to return 10 times or more the initial investment. Here’s a tip: don’t waste your time on venture capital unless you’re going for the big leagues.