Venture capital is a pool of capital designated for equity investments in high growth companies. Most of these companies are considered high risk investment ventures by the standard capital market owing to either the stage of the business life cycle or the domain of business it is involved in.
Hence, venture capital is also termed as risk capital.
Venture capitalists invest in companies via an equity participation. Simply venture capital investments are generally made in the form of cash injected in exchange for shares in the private limited company. The investments are entered upon with clear exit strategies to deliver returns on investment. The exit strategy, often takes the form of the sale of the shares in an investee company in exchange for cash.
A venture capital fund has a fixed term period, commonly referred to as a charter life. Therefore, venture capitalists have a limited amount of time to place the capital to work before the lapse of the venture capital charter fund. For that reason, all investments made must be exited within a certain period of time before the expiry of the funding charter life.
