Let’s Properly Define The Term “Venture Capital”

The idea of “venture capital” has evolved over the decades, enough to fill a small history book. It’s too easy to lump different types of investors into the “VC” monolithic bucket. So, I’d like to offer up a current, 2013-version definition of what *is* venture capital and what *is not* venture capital — and of course, I’d like your comments as I seek to refine this, so consider it a work in progress:

Let’s start out with what *is not* venture capital. Venture capital is not private, individual angel investing. Venture capital is not seed funding in a large syndicate. Venture capital is not growth or expansion capital deployed into companies that are already successful. Venture capital is not late-stage investing. Venture capital is not buying shares in private on secondary markets. Venture capital is not acting like a hedge fund.

v1 – What, then, *is* venture capital? Venture Capital is the aggregation of external capital by an institution with the sole purpose of investing that capital (usually as a lead investor) into early-stage, privately-held companies based on very little information (imperfect information) with the intent of funding businesses, products, and services that mature alongside markets to the point where the investor can realize a larger return, either through an acquisition, secondary share sale, or going public and liquidating within a 7-10 year time horizon.

OK, now your thoughts — how would you change or amend this? (see comments below) I realize there are legal definitions of venture capital, and that some angel investors think of themselves as venture capitalists. I won’t argue with the law or what others think, but will amend the definition to what I personally believe it is.

v2, final – What, then, does venture capital to me? Venture Capital is the aggregation of external capital by an institution (including companies, or even family offices managing their own funds) or individual with the sole purpose of investing that capital (often as a lead investor) into (relatively) early-stage, privately-held companies based on scarce information (imperfect information) with the intent of funding and assisting in the growth of businesses, products, and services that mature alongside markets to the point where the investor can realize a larger return, either through an acquisition, secondary share sale, or going public and liquidating within a 7-10 year time horizon, if not sooner.