Venture capital firms are investment companies that operate for the sole function of handling investments in business ventures that may be considered high risk. A venture capital firm may specialize in working with startup firms that are seeking funds to cover operational expenses until profitability is achieved. The firm may also focus on rescuing established firms that are in financial trouble but demonstrate some potential for becoming profitable again after some retooling. Some venture capital investment firms will provide funding for both situations, as well as short term projects that fall anywhere along the spectrum.

A venture capital firm may be a small operation that works with a limited amount of seed money supplied by a few investors. In other instances, an investment company of this type may include hundreds of investors and have billions of dollars at its command. However, the size of the firm is not always indicative of the type of venture capital deals that the company will take on. A large venture capital firm may choose to devote a portion of its attention to startups along with funding major deals involving the restructuring and renewal of well established international business entities.

What sets a venture capital firm apart from other funding sources is that venture capitalists do not tend to be passive in their approach to the task. While many funding agencies will simply loan the money and expect nothing more than repayment according to terms, the venture capital firm will take an active interest in the setup, operation, marketing, distribution, and sales efforts of the funded company. Generally, the contract between the venture capital firm and the client receiving funding will specify the rights and privileges of the firm in regard to involvement in the day to day functions of the client.

One additional benefit that a venture capital firm often brings to the table is the ability to create new vendor relationships between clients of the firm. For example, Client A may manufacture an outstanding product, but does not have adequate distribution facilities. Client B possesses excellent distribution technology and facilities and can take over that function at a price that will cut expenses for Client A. The venture capital firm introduces the two clients, who are then able to strike a deal. As a result, both clients experience a healthier bottom line. At the same time, the venture capital firm benefits from the healthier financial outlook of the two clients.