Question: What is venture capital?Answer:
Venture capital is a type of private finance provided by individual investors and institutional investors such as investment banks and venture capital firms to high-growth companies in exchange for equity.
Venture capital also typically characterises the relationship between the investing party and the high-growth company. Such a relationship can provide mentoring, new networks and industry know-how to the company and facilitate an exit event such as an initial public offering (IPO), sale or merger.
Venture capital investors typically request a level of control over the company through voting rights and/or the right to appoint a director. Such investors may also be concerned about protecting their interests in the event that the company fails. Liquidation preferences may provide a softer landing if the company undergoes liquidation and there is a division of assets. Liquidation preferences prioritise repaying an investor their initial investment (or a multiple of their initial investment) over ordinary shareholders.