Venture capital belongs to the area of off-market equity capital – also known as private equity. Venture capital is capital that a business angel or a venture capital fund provides to a start-up. These companies usually are young technology companies that are not traded on the stock exchange. In return, the venture capital investor (VC) receives shares in the start-up. Venture capital funds generate their returns when the start-up is sold, taken over or floated on the stock exchange. Due to the young age of the companies and the associated uncertainty about their future business development, such investments are associated with high risks. The venture capital fund achieves an attractive return with some very successful investments.

A venture capital company makes the capital available to a start-up either in the form of equity capital or in the form of equity-like forms of participation. In addition, the founders are given access to the VC firm’s network. This gives them access to a pool of contacts with business partners, experts, potential co-investors or buyers. In return, the VC firm claims extensive decision-making rights in the strategic orientation of the start-up company.

When compiling the portfolio, professional VCs focus on a diversification according to industries and technologies, development stages, regions and / or countries. In addition, they strive to reduce management risks by providing less experienced founders with access to experts, by supporting them with coaching or mentoring programs and by being available as sparring partners.