Venture capital
Investment from venture capital funds in fast-growing companies, in return for shares (usually preferred stock) and a say in how the company is run. Large sums for growth, but only for a few businesses, and at the cost of ownership and control.
- Shares
How it works
A venture capital (VC) fund is a private fund that invests its investors' money in rapidly growing companies, often in particular industries. According to the SEC, VC funds are typically set up to last at least ten years: a few years investing, then supporting their companies, then "exiting," usually through a sale of the company or a stock market listing, to return money to their own investors. That is why VCs look for companies that could grow very large.
What you give up: most VC investments are equity, such as preferred stock, which carries rights ordinary shares do not. VCs usually take a seat on the board or advisory board, and the SBA notes that almost all will want at least a board seat. Many invest again in later rounds, from Series A until a public offering.
The process, as the SBA describes it: find investors that focus on your industry, stage or region; share your business plan; go through due diligence on your team, market, products, governance and financial statements; agree a term sheet; then receive the investment. Money usually comes in rounds as you meet milestones, with the price adjusted each time.
Securities rules: a VC round is a securities offering, usually under Regulation D to accredited investors, with a Form D filed within 15 days of the first sale.
QSBS: for stock in a C corporation issued after July 4, 2025, investors who hold it for at least 3, 4 or 5 years can exclude 50%, 75% or 100% of the gain from their taxable income, up to $15 million each per company, if the company's gross assets were no more than $75 million when the stock was issued and it runs a qualifying active business. Only C corporations can issue qualifying stock.
SBICs: Small Business Investment Companies are privately owned investment funds licensed and regulated by the SBA, which use their own money plus SBA-guaranteed borrowing to make equity and debt investments in small businesses.
Upsides and downsides
Upsides
- Large sums to grow quickly, with no repayments
- Investors bring contacts, guidance and help with hiring and later rounds
- Funds often invest again in later rounds
Downsides
- Only suits companies that could grow very large
- You give up a significant share and some control, usually including a board seat
- Raising a round takes months of founder time
Risks
- Later rounds can dilute founders further, especially at a lower price
- Investors' preferred stock has different economic rights, which can change what founders receive on a sale
- Pressure to exit on the fund's timetable may not match yours
What it costs
- How it is priced
- A share of the company, usually as preferred stock with extra rights for the investor
- Costs that are easy to miss
- Legal and due diligence costs for each round
- Investor rights such as board seats, vetoes over big decisions and preferences on a sale
- Pressure to grow fast and to sell or list the company within the fund's life
Usually larger than angel rounds, and rising with each round. The SEC reports about $215 billion of US venture investment in 2024.
Selling shares? Ownership after each round: see what you would own after each round
Raising on SAFEs or notes? SAFEs and notes in your next round: see what they take when they convert
Does it fit?
Could fit when
- You run a high-growth company that could become very large
- You are willing to give up a significant stake and some control
Unlikely to fit when
- You want to keep full ownership, or only a small share given up
- Your business is unlikely to grow fast enough to give investors a large return
- You want to run the business your own way for the long term without selling it
Who can use it
- Business types: C corporation, Benefit corporation, LLC
- Open to businesses with no sales yet
- Very high growth potential, usually with a large market and a strong team
- Only C corporations can issue stock that qualifies for the QSBS tax break
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all private equity investment
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- Pitch deck and plan
- Ownership table
- Due diligence files
Regulation and protections
Regulators: U.S. Securities and Exchange Commission (SEC); State securities regulators.
Who runs it: Private providers, nationwide.
A securities offering, so federal anti-fraud rules apply to everything said to investors. VC funds and their advisers have their own SEC rules. States can require notice filings and fees for Rule 506 offerings.
Types of provider: Venture capital funds; Small Business Investment Companies (SBICs) licensed by the SBA.
Small Business Investment Companies (SBICs): 10 examples in the directory · chosen from an official list by a stated rule, never for payment
Also consider
What has changed
No changes since this page was published. It was last checked against its sources on October 17, 2026.
Sources
- SEC: Early-stage investors (friends and family, angels, venture capital) · checked October 17, 2026
- SBA: Plan your business (fund your business: venture capital and SBICs) · checked October 17, 2026
- SEC: Exempt offerings (Rules 506(b), 506(c) and Form D) · checked October 17, 2026
- Public Law 119-21 (July 4, 2025), section 70431: expansion of the qualified small business stock exclusion · checked October 17, 2026
- 26 U.S.C. 1202: partial exclusion for gain from certain small business stock (2023 edition) · checked October 17, 2026
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