Venture capital
Professional investment funds buy minority stakes in young, high-growth companies, usually in several rounds, and expect a large return when the company is sold or listed.
- Shares
How it works
Venture capital (VC) funds invest in early-stage, innovative companies with strong growth potential. Many are pre-profit or even pre-revenue.
- VCs usually take minority stakes, often alongside other investors, and typically join the board.
- Funding comes in rounds: seed (often several hundred thousand pounds, sometimes from angels, crowdfunding or grants), then Series A, B, C and so on, each of which can raise many millions.
- Funds usually hold investments for five to seven years, then aim to "exit" through a stock market listing (IPO), a sale to a larger company, or a sale to another investor such as a private equity firm.
- Government-backed schemes such as EIS, SEIS and Venture Capital Trusts (VCTs) encourage investment in UK businesses.
Upsides and downsides
Upsides
- Large amounts of capital for rapid growth
- Experienced investors bring strategy, contacts and credibility
- Profit, and sometimes revenue, are not required
- No repayments or interest
Downsides
- You give up ownership in each round
- Investors expect very fast growth and an exit within years
- Board seats and investor rights reduce your control
- Raising takes many months
Risks
- Losing control of the company over several rounds
- Pressure to sell the company on the investors' timetable
- Later rounds at a lower valuation can dilute founders heavily
What it costs
- How it is priced
- A minority stake in the company in each funding round
- Costs that are easy to miss
- Legal fees for term sheets, investment agreements and new articles of association
- Investor rights, such as board seats, vetoes over major decisions and preferred returns
- Management time spent raising each round
Seed rounds are often several hundred thousand pounds. Later rounds can raise many millions.
Have an offer? Dilution calculator: see what you would own after each round
Does it fit?
Could fit when
- You are building a company that could grow very large, very fast
- You need more capital than angels or loans can provide
Unlikely to fit when
- You want to keep control or build a steady, lifestyle business
- You do not want to sell the company within the next decade
Who can use it
- Business types: Private limited company, Public limited company
- Open to businesses with no sales yet
- Investors look for innovative businesses with strong growth potential
- Often focused on sectors such as life sciences, IT and fintech, but not only these
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
- Financial model
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Regulation and protections
There is no compensation scheme for the company. Your protection comes from the investment agreement, so take legal advice before you sign. You can check a fund manager on the FCA Register.
Types of provider: Venture capital funds; Venture Capital Trusts (VCTs); Government-backed funds and co-investment programmes.
Also consider
Sources
- British Business Bank: Venture capital · checked 7 October 2026