Question

What do you understand by venture capital?

Hint:

Venture capital = Financial support for high-risk, high-return, innovative start-ups.

Answer 1

Step 1: Basic meaning.
Venture capital is a form of financing that investors provide to small, early-stage, emerging firms that are believed to have high growth potential.
Step 2: Key features.
1. High risk: Since it is given to new or innovative projects, there is high uncertainty.
2. High return: In case the project succeeds, investors gain very high returns.
3. Equity participation: Venture capital is usually provided in the form of equity shares, making the investor part-owner of the firm.
4. Focus on innovation: It is mostly given to technology-based or innovative businesses.
Step 3: Example.
A start-up company developing a new software product or a biotechnology firm creating a new medicine may receive venture capital funding.
Step 4: Conclusion.
Venture capital is therefore a special type of investment that combines high risk with the possibility of very high returns.