What is venture capital investment?

The Finnish Venture Capital Association (FVCA) defines venture capital investment as follows:

"Venture capital investment means investing in companies that are not quoted on the stock market and have good development potential. The venture capital investor is not a permanent owner, but intends to exit the enterprise in accordance with a plan agreed. Venture capital investments are primarily made as equity investments or as mezzanine financing. By providing value added, the investor strives to raise the value of the enterprise. The rise in value is realised at the exit stage, when the investment company gives up its holding in the target enterprise.

The value added brought by the venture capital investor is usually associated not only with financing but also with the creation of strategies, overall financial arrangements, working on the Board, budgeting, marketing, development of management systems, and knowledge of the sector. The presence of a venture capital investor increases the enterprise’s credibility in regard to other stakeholders and also improves the possibilities of receiving other financing. In addition, the target enterprise has access to the investor’s domestic and international contact network.

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Various financial instruments are well suited to venture capital investments. The most typical venture capital investment instruments are investments in shares and convertible loans."

Finnish Venture Capital Association, www.fvca.fi

European Private Equity and Venture Capital Association, www.evca.com