What is Venture Capital?
/ˈventʃər ˈkæpɪtl/
Everyday Example
When a VC invests £500k in a startup for 10% equity, they're betting the company will eventually be worth £50m+. Most investments fail entirely — but one success like Uber or Airbnb can return the entire fund many times over.
publicReal-World Application
“Sequoia Capital invested $60,000 in Google in 1999 for ~1% equity. That stake was worth approximately $6.5 billion at Google's 2004 IPO — a 100,000x return. This power law of returns defines how VC portfolios work.”
Did you know?
Venture capital emerged in post-WWII America, institutionalised by Georges Doriot who founded American Research and Development Corporation in 1946. Silicon Valley's dominance of global tech is largely attributable to the VC ecosystem that grew there.
Key Insight
VC funds invest knowing most companies will fail. The strategy works because the distribution of returns is power-law: one investment returning 1000x outweighs 99 total losses. This makes VC unique — diversification reduces returns.
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