Venture capital is financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. For startups without access to capital markets, venture capital is an essential source of money. Risk is typically high for investors, but the downside for the startup is that these venture capitalists usually get a say in company decisions.
Venture capitalists are long-term investors, who take a very active role in their portfolio companies, but are also open to short term opportunities for realizing returns on their investments. When a venture capitalist makes an investment he/she may expect to realize returns on the portfolio investments over a period of 7-10 years, on average. The initial investment may just be the beginning of a long relationship between the venture capitalist and entrepreneur. Venture capitalists provide great value by providing capital and management expertise. Venture capitalists often are invaluable in building strong management teams, managing rapid growth and facilitating strategic partnerships. Should there be opportunities for liquidating the investments due to market conditions and the performance of the portfolio company, a venture capitalist will seek to do so, sometimes well within the first few years of making the investment.