Venture Capital

What venture capital is

A startup with no profits and few assets cannot borrow much, so it raises money the only way it can: by selling ownership. Venture capital funds pool money from large investors and use it to buy shares in private companies they believe can grow enormously. It is a cousin of private equity, with the crucial difference that venture investors back unproven businesses instead of buying established ones.

The returns follow a harsh pattern sometimes called a power law. In a typical fund, most investments fail outright or merely limp along, and the fund's fate rests on one or two spectacular winners. This is why venture investors chase companies with enormous potential markets rather than modestly good businesses: a startup that can only triple is, strangely, of little use to them.

The stages, in plain words

Funding arrives in rounds. The earliest money, often called seed funding, pays for a team and a prototype. The next rounds fund a product that works, then a business that is visibly growing, then expansion at scale, with larger funds writing larger cheques as the risks shrink. Each round sells a fresh slice of the company, ideally at a higher valuation than the last. The lettered labels attached to these rounds matter less than the logic: every round should buy enough progress to justify the next one.

What VCs bring, and what founders give up

Good venture investors supply more than money: introductions to customers and future hires, the discipline of board oversight, and a credibility stamp that makes later fundraising and partnerships easier.

The price is ownership and control. Founders hand over board seats, veto rights on major decisions, and a steadily shrinking share of their own company. They also accept the venture timetable, which pushes toward rapid growth and an eventual exit through a sale or an IPO, rather than running a comfortable private business indefinitely.

For investors: mostly out of reach

Venture funds raise money from institutions and the very wealthy, and direct access is effectively closed to ordinary investors. Picking startups yourself as an angel investor is legally possible in places but demands deal access, diversification across many bets, and a full tolerance for losing everything on most of them.

The honest close: most Canadians already get their venture exposure indirectly, through large pension plans that invest in the asset class and through public markets, where the biggest venture-backed winners eventually list and become available to everyone.