Venture Capital and Private Equity

As small businesses succeed and grow, they typically run into is a funding constraint, where the funds that they have access to are insufficient to cover their investment and growth needs. A venture capitalist or private equity investor provides equity financing to small and often risky businesses in return for a share of the ownership of the firm.

Generally speaking, the capacity to raise funds from alternative sources and/or to go public will increase with the size of the firm and decrease with the uncertainty about its future prospects. Thus, smaller and riskier businesses are more likely to seek venture capital and are also more likely to be asked to give up a greater share of the value of the firm when receiving the venture capital.

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