How Venture Capital Works

Richard Rinaolo has been involved in venture capital funds for more than a decade. The former managing partner at NSPV Venture Fund in Lake Forest, he closed investor financing several times and assumed equity stakes in five ventures. Richard Rinaolo is now the managing partner at Phoenix Venture Capital, LLC, a venture capital fund focused on real estate opportunities.

Venture capital is an alternative funding option for businesses or business ventures that cannot (or choose not to) obtain finances via a bank loan or personal savings. This means that much of venture capital funding is for businesses that are just starting. Companies that cannot get started via bootstrapping, a method of investing a small amount into a business to get it started, may also seek venture capital funding.

Traditionally, venture capital comes in the form of a pool of money from companies or wealthy individuals. This fund is invested or managed by a venture capital firm. The firm has a set of investment opportunities that it focuses on, so any investments it makes are constrained by these guidelines. It also expects that money given to companies will be repaid after 3 to 7 years when the business is either acquired or goes public. Once this happens, interest and the original investment is paid back to the venture capital firm, and then back to the original investors.