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Venture capital is a term to describe the financing of startup and early stage businesses as well as businesses in "turn around" situations. Venture capital investments generally are higher risk investments but offer the potential for above-average returns. A venture capitalist (VC) is a person who makes such investments. A venture capital fund is a pooled investment vehicle (often a partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. A limited partner is a person or organization who invests capital in a venture capital fund for financial gain. A general partner is a venture capitalist who manages the fund and makes investments.

Investments by a venture capital fund can take the form of either equity participation or a combination of equity participation and debt obligation—often with convertible debt instruments that become equity if a certain level of risk is exceeded. In most cases, the venture capitalist becomes part owner or a member of the Board of Directors of the new venture. Most investments are structured as preferred shares—the common stock often reserved by covenant for a future buyout, as VC investment criteria usually include a planned exit event (an IPO or acquisition), normally within three to seven years. In case a venture fails, then the entire funding by the venture capitalist has to be written off