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Venture capital refers to money that is invested in early-stage businesses and start-ups. It plays a vital role in supporting innovation, particularly in the technology sector. If a tech startup is pitching a product or service that is not well understood, it can be difficult for the company to get loans from traditional lending institutions. These startups have to turn to investors to get access to the required capital, usually in exchange for giving the investors an equity stake in the company.
The technology sector is extremely competitive. As a result, many start-ups never realize their full potential due to a number of factors, and many more simply fail. This makes investing in start-ups a high-risk, high-reward proposition. Risk is something that most banks want no part of, so venture capitalists step in to fill this gap in return for a share of the proceeds if the company succeeds. Some venture capitalists go beyond merely giving money, and offer their expertise and experience as well. This help can sometimes prove more valuable to a tech startup, as an experienced hand in managing a company can help turn promising ideas into salable products.