Venture capital is a type of investment for companies with high-growth potential, many of which will not yet be making a profit but which have the potential of very strong growth.
Venture capital is a simple investment model. It raises capital from institutional investors like pension funds, insurance companies and family-offices and uses this money to buy equity stakes in businesses across the UK and across a wide-range of sectors.
Venture capital invests in companies that are typically not listed on a stock market and seek to make a return on its investment by growing and improving the company using not only finance but also their own commercial expertise and business insight. This means there is a commitment to building lasting and sustainable value in the companies they invest in.
The length of the investment varies but generally it is between four to seven years at which point the business will either be floated on the stock exchange, acquired by a multinational corporate or another investor such as a private equity house.
Creating value in a business and improving the business over the lifetime of the investment is key so that by the time the Investors sell their equity stake, the company is in a better shape and is worth more than when the investment was first made.
Businesses seek venture capital investment for a number of reasons, including to grow their manufacturing and sales operations, enhance their product development and/or expand their business and hire new staff.