What Is Venture Capital?

By Anders Bylund – Updated Nov 9, 2025 at 11:56 PM EST

Key Points

Venture capital funds early-stage companies, anticipating high future returns.
Investors often seek influence in company decisions by taking board positions.
Significant risks in VC investing come with the potential for outsized returns.

You've heard the term "venture capital" bandied about, especially if you've tuned into shows like Shark Tank. But what exactly is venture capital, and why do so many fast-growing start-ups rely on this cash source?

Loading paragraph...

Cash exchanges hands between two people. — Image source: Getty Images.

Loading image...

Loading paragraph...

Returns

Returns are the difference between the initial price of an asset and the dollar value that has been generated after ownership has ended.

On the other side of the table, it's a way for investors to swing for the fences by backing the best start-ups early on. The earlier you bet on a future market darling, the greater your returns on that investment can grow.

The investors often want a say in how the target company is run, typically installing a seasoned professional or two on the board of directors. The capital providers also establish partial ownership long before the company goes public on the stock market.

Investors hope to eventually sell the primary or preferred stock they acquire in a VC deal. That transaction could be quick or many years later, depending on how the business idea works out in the real world.

Loading paragraph...

About 10% of VC investments account for 90% of the asset category's total returns. So, investors really are looking for home runs here.

This funding model involves significant risks but also offers the potential for outsize long-term returns. If you're still interested in VC opportunities with these caveats, there are a couple of ways to do it.

If you are one of those high-net-worth individuals with funds to spare, your financial advisor could help you find and set up direct VC investments or involve you in a larger fund.
You can buy stock in some of the most active VC firms. VC investment announcements can help you find these names. Apollo Global Management (APO -2.28%), Ares Management (ARES -6.18%), and Brookfield Asset Management (BAM -2.46%) are three of the largest publicly traded VC specialists, all with hundreds of billions of dollars invested through VC funding. These stocks let you ride the coattails of their VC investments.
Some mutual funds or exchange-traded funds are set up to make VC investments instead of buying ordinary stocks. For example, the Private Shares Fund (PRIVX -0.57%) looks for "late-stage, venture-backed private companies," such as the Discord communication service; Fortnite and Unreal maker Epic Games; and Ripple Labs, the company behind the XRP (XRP -0.72%) cryptocurrency. This is arguably the most direct way a retail investor with limited funds can put money into VC targets.

Loading paragraph...

Exchange-Traded Fund (ETF)

An exchange-traded fund, or ETF, allows investors to buy many stocks or bonds at once.

Loading paragraph...

Private Equity vs. Venture Capital: What’s the Difference?

Curious about the relationship between private equity and venture capital? You've come to the right place. Let's take a look.

What Does Meta Own?

With its family of apps and Reality Labs segments, Meta has become a huge technology company. Here's a look at what it owns.

Top 8 Artificial Intelligence Start-Ups to Watch in 2026

Learn about AI start-ups and how they're impacting the rapidly evolving artificial intelligence industry.

What Is a Bond Rating?

A bond's rating can say a lot about a particular security and its investment risk level.

Loading hub_pages...

It started with a $500,000 angel investment from billionaire Peter Thiel in 2004. Thiel joined Facebook's board of directors the next year, a position of influence and responsibility he held until 2022.

Investor interest skyrocketed after that. VC firm Accel Partners led a $12.7 million funding round in the spring of 2005, followed by a $27.5 million cash infusion from four firms in 2006. This Series B round locked down a 9.7% ownership stake in the company, valued at $468 million.

Several more VC investments followed in 2007 and 2008, including a $240 million commitment from Microsoft (MSFT -0.43%). This round valued Facebook at $15 billion, and Microsoft reportedly attempted to buy the whole company at that price. But Zuckerberg turned down that proposal and raised another $2 billion from VC firms Elevation Partners, Digital Sky Technologies, Triplepoint Capital, and others.

Facebook filed for an IPO after amassing more than 500 shareholders. The stock was worth almost $82 billion on the first market day. Some pre-IPO investors held on for the long haul, while others cashed in their winning stubs. Microsoft, for example, sold 20% of its Facebook shares shortly after the IPO, pocketing $249 million in total -- a $9 million profit from the original $240 million investment.

With a market cap of more than $740 billion in the summer of 2023, it's safe to say that Facebook's VC investors enjoyed healthy returns on their investments. Meta turned out to be the game-changing moonshot opportunity every VC investor dreams of.

Loading paragraph...

About the Author

Anders Bylund is a contributing Motley Fool media and technology analyst covering semiconductors, cloud computing, internet infrastructure, quantum computing, and streaming media. Previously, Anders was a systems administrator for Nielsen Technology and CSX, gaining hands-on experience with enterprise-class systems. He was also a freelance writer for Ars Technica, TIME, USA Today, CNN, WIRED, and AOL's Daily Finance. He holds a bachelor’s degree in English and a master’s degree in library and information sciences from Florida State University. He believes in coyotes and time as an abstract.

TMFZahrim

@TMFZahrim

Anders Bylund has positions in XRP. The Motley Fool has positions in and recommends Brookfield Asset Management, Meta Platforms, Microsoft, and XRP. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.