In its rawest form, venture capital is the money invested in young, rapidly growing businesses—in essence, the important startup CAPITAL needed by new businesses. It is invested in high-risk situations with a compensating high expectation of return. To produce such compensations, usually a notable portion of the startup ownership is apportioned to these investors, the venture capitalists. Venture capitalists typically purchase only EQUITY securities in new and rapidly growing businesses but usually bring more than just financial RESOURCES to a company. Normally they also become active participants in the new enterprise by utilizing their expertise and business relationships on the company’s behalf. For example, a venturecapital firm may invest only in restaurant startups, so they not only invest financial resources but can bring in skills and processes useful to the startup. Venture capitalists like to characterize themselves as entrepreneurs first and investors second. Most commonly, venture capital is raised from a venture-capital firm, the use of which allows the investor to offset the risk of a single INVESTMENT with a portfolio of projects. Venture-capital firms usually consist of a small group of fairly wealthy individuals who have been successful in previous startup situations, very often as the startup entrepreneurs. These individuals serve as the general partner and manage the MONEY invested in the fund by other limited partners. The limited partners realize that the fund is a high-RISK, high-return investment, but they want to benefit from the investment insights of the general partner. Venture-capital investment firms most often focus on a certain industry and on investments at particular stages in a company’s emergence. Venture capital jargon breaks the emergence of a new company into three stages of financing. “Seed capital” is needed at the earliest “start-up” stage. This is money to help a company that is just starting out and does not yet have PRODUCTs or customers. The next stage is “early stage financing,” which is designed to fund the early growth after the company starts delivering a product. The final venture capital state is “expansion stage financing” to fund the expansion of the company into new markets or product lines. Each stage is less risky and so demands a lower expected return on investment. Though venture capitalists claim to have a long-term orientation, they most often include provisions for an EXIT STRATEGIES in their plans that will allow them to boost their returns within three to five years. The most exciting exit is for the company to have an INITIAL PUBLIC OFFERING (IPO), listing its stock on a stock exchange. This raises the money to buy out the stock owned by the venture capitalist, in many cases producing very good returns for the existing capitalist. However, the most likely exit is for the company to be bought by another company, and very often the original company founder buys the stock owned by the venture-capital firm. Mack Tennyson