A venture capital firm is a company that invests other people’s money in young, fast-growing startups in exchange for part ownership. It expects most of its returns to come from a few companies that grow very large.
Venture capital firms backed many of today’s largest tech companies when they were small. In the third quarter of 2026, venture investors put $159 billion into close to 6,000 startups worldwide, according to Crunchbase.
What is a venture capital firm?
A venture capital firm, or VC firm, raises money into funds and invests that money in private startups. In return, it receives shares, usually a minority stake.
The firm does not own the startups outright. Founders keep control in the early years, while the VC firm often takes a board seat.
VC firms invest early, when risk is high. Many startups in a fund fail. The firm counts on one or two large winners to return the whole fund and more.
How a venture capital firm is structured
Most VC firms have two groups of people. The firm’s partners run the fund, and outside investors supply most of the money.
| Role | Who they are | What they do |
|---|---|---|
| General partners (GPs) | The firm’s partners | Pick startups, join boards, manage the fund |
| Limited partners (LPs) | Pension funds, endowments, family offices, wealthy individuals | Commit capital and wait for returns |
| Portfolio companies | The startups in the fund | Use the money to hire, build and grow |
A typical venture capital fund runs for about 10 years. The firm invests during the first few years and spends the rest supporting companies and selling its stakes.
Many firms use a fee model known as “2 and 20.” They charge about 2% of the fund each year to cover costs and keep about 20% of profits, called carried interest.
Exact terms vary by firm. Top-performing firms sometimes charge more, and newer firms often charge less.
Startup funding stages a VC firm invests in
Startups raise money in rounds. Each round has a name tied to how far the company has grown.
| Stage | Company status | Typical use of money |
|---|---|---|
| Pre-seed | Idea or early product | Build a first version |
| Seed | Early users or pilots | Find product-market fit |
| Series A | Repeatable revenue | Build sales and expand the team |
| Series B and C | Growing fast | Enter new markets, scale operations |
| Growth or late stage | Large and near an exit | Prepare for an IPO or acquisition |
Some VC firms invest at one stage only. Others, called multi-stage firms, invest from seed through growth rounds.
Y Combinator, for example, offers a standard $500,000 deal to the startups in its program. A list of the most active seed investors in AI shows how check sizes differ across early-stage firms.
Venture capital firm vs private equity firm
People often mix up venture capital and private equity. Both raise funds from limited partners, but they buy different kinds of companies.
| Factor | Venture capital firm | Private equity firm |
|---|---|---|
| Company stage | Startups, often not yet profitable | Mature, profitable companies |
| Ownership | Minority stake | Usually majority or full control |
| Use of debt | Rare | Common in buyouts |
| Return source | A few very large winners | Profit growth across most holdings |
| Example | Sequoia Capital | Thoma Bravo |
The line between the two has blurred. Some private equity firms now join late-stage startup rounds, and some VC firms run growth funds that write very large checks.
Venture capital funding in 2026
Venture funding in 2026 is running at record levels. Startups raised $679 billion in the first nine months of the year, the highest total for that period on record, according to Crunchbase.
Funding peaked in the first quarter at about $308 billion, based on Crunchbase’s year-to-date total. It fell to $212 billion in the second quarter and $159 billion in the third.
The third-quarter figure was still 53% higher than the $104 billion raised in the same quarter of 2025. A record 27 companies raised rounds of $1 billion or more during the quarter.
AI companies took $102 billion of the third-quarter total, or 64%. A fuller set of AI startup funding figures for 2026 breaks the totals down by quarter and region.
Examples of well-known venture capital firms
A few firms appear again and again in large funding rounds. Here are three with long records.
Sequoia Capital
Don Valentine founded Sequoia Capital in 1972 in Menlo Park. Its portfolio includes Apple, Google, Airbnb and Stripe, and it invests from seed through growth stages.
Andreessen Horowitz
Marc Andreessen and Ben Horowitz founded Andreessen Horowitz, known as a16z, in 2009. The firm runs funds for several sectors, including AI, crypto and biotech.
Benchmark
Benchmark keeps a small team and a concentrated portfolio. Its partners take active board roles, such as Eric Vishria at chipmaker Cerebras.
After Cerebras went public, Newcomer valued Benchmark’s stake at $5.5 billion at the first-day close. The firm’s other holdings are covered in this review of the Benchmark Capital portfolio.
How a venture capital firm makes money
A VC firm earns money in two ways. The first is the yearly management fee, which pays salaries and running costs.
The second is carried interest. When a portfolio company is sold or goes public, the firm returns the original capital to its limited partners and then keeps its share of the profit.
Exits can take many years. Most of a fund’s profit often comes in its later years, after its best companies are acquired or listed.
How startups raise money from a VC firm
Most VC firms meet founders through referrals. A warm introduction from another founder or investor usually gets more attention than a cold email.
If the firm is interested, partners hold several meetings and check the market, product, team and early numbers. This review is called due diligence.
A firm that wants to invest sends a term sheet. It lists the amount, the valuation, board seats and investor rights. Lawyers then turn it into final contracts.
Founders should compare more than price. The firm’s sector knowledge, follow-on funding and track record with portfolio companies also matter.
FAQ
What is a venture capital firm in simple terms?
A venture capital firm pools money from investors and puts it into young startups in exchange for part ownership. It profits when those startups are sold or go public at a higher value.
Where does a venture capital firm get its money?
Most of the money comes from limited partners, such as pension funds, university endowments, family offices and wealthy individuals. The firm’s own partners usually invest a small share too.
How much equity does a VC firm take?
It depends on the round size and the startup’s valuation. A VC firm usually takes a minority stake in each round, so founders keep control of the company in its early years.
What is the difference between a VC firm and an angel investor?
An angel investor uses personal money and writes smaller checks. A VC firm invests money from a fund it manages for outside investors and usually invests larger amounts.
How long does a VC fund last?
A typical venture capital fund lasts about 10 years. Firms often add one or two extension years if portfolio companies have not yet been sold or listed.
