Venture capital is risk capital. The risk capital practice is held by an assessment, carried out by the Investment Committees, of the business projects that are submitted by entrepreneurs, in which is evaluated the convenience to acquire shares of certain companies. It is a type of financial transaction whereby the capital is facilitated to companies that are starting their activity or that have begun to sell their product, but still don’t have income – the called “start-up companies” – which have a high potential and risk in the growth phase.
The venture capital funds get profit of this type of operations by converting in owners of the asset of the companies they invest in. The companies which derive more benefits from venture capital are the ones who hold a new technology or an innovative business model within a technological sector such as Information and Communication Technology, Software, etc..
Within what is considered risk capital, there is a clear distinction between the entities that focus their activity in developing business projects in early stages which require initial funding to impel the project – venture capital –, and those whose activity is to invest in companies already consolidated, for which suits better the expression private capital or private equity.
In countries with less developed financial sectors, venture capital plays a key role in the access to finance for small and medium companies.