Venture capitalism (VC) is a form of private equity investment usually undertaken by VC firms. These firms choose small, emerging businesses (e.g., startups) with high potential for growth and provide them with funding in exchange for an ownership stake in the company. VC firms typically make short term investments, providing seed money that allows a new company to get off the ground and, with luck, eventually become large and stable enough to attract more traditional investors. VC firms are extremely risky, as the emerging businesses they typically invest in have high failure rates. However, they also present a chance for great success. VC is a staple of the modern tech industry; companies like Facebook, Apple, and Amazon were all initially backed by venture capital firms.

VC firms fill a special niche in the business world that other investors typically cannot. The small businesses they fund are considered private companies. This means their stocks can’t be traded on a stock exchange, where companies can exchange ownership stakes for the capital they need to grow. Venture capital firms find promising private companies and finance them outside of the stock market.  

VC firms are contingent on the formation of limited partnerships (LPs). LPs are agreements wherein two or more parties go into business together.