Venture Capital

Venture capital funds young companies that are small now but could grow enormously. It provides money in exchange for equity and profits when the company lists or is acquired.

The model is distinctive. Invest in ten companies and five or six fail, two or three return the money, and one succeeds so dramatically that it covers all the losses and more. Failure is built into the arithmetic.

Investors do more than write cheques. They take board seats and help with hiring, strategy and later funding rounds, which is why which firm backed a startup is read as a signal of credibility.

Capital is locked up for a long time — typically seven to ten years from investment to exit. There is no market to sell the stake in the meantime, so liquidity is effectively nil.

Individuals rarely participate directly, though listed venture firms and related funds offer indirect exposure. Expect volatility and loss potential far beyond ordinary shares.