Venture Capitalist

Financial Dictionary -> Investing -> Venture Capitalist

A Venture Capitalist is an individual investor that might have extra cash to invest in a small business or fully staffed investment firm that provides capital to struggling businesses or company that cannot obtain finance from traditional sources. This is also a way of getting outside investment for businesses that are unable to raise finance through the stock market. Venture capital, aka the funds raised by venture capitalists is often called risk capital.

Venture capitalists usually invest in smaller riskier companies for a quick turnaround and decision making benefits. They may make a loan or even become part owners. It is often considered a riskier form of investment, although those that succeed can make significant wealth. Many venture capitalists often end up with complete control of a business, turn it in to a money maker and sell it on for a profit. A common investment amount for venture capitalists is $500,000 - although this can obviously vary from case to case.

Venture capitalists will use a number of different investment methods. The might use standard loans, make private investments in a business's shares, or buy assets and rent them back to the business for instant cash.

Although the main reason why the venture capital industry exists is to provide capital to smaller and medium sized firms, in practice it has been criticized for its reluctance to provide initial start-up investment, which represents only 4 percent of its average lending. Venture capitalists prefer to finance expansions for already established but often risky or struggling businesses.

Venture capitalists are always at the forefront of emerging markets, and often seek out innovations and new technology that might turn out to be the "next big thing".