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Blue Chip Kids: What Every Child (and Parent) Should Know About Money, Investing, and the Stock Market by David W. Bianchi

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CHAPTER 14 VENTURE CAPITAL AND PRIVATE EQUITY (BIG BETS CHASING BIG PROFITS)

Venture capitalists and private equity investors frequently invest directly in private companies where there is no public market for the stock and the only way to monetize their investments (which is a fancy way of saying “make money”) is to make sure the companies they invest in are successful.

Venture Capital (VC)

Venture capital refers to money raised from wealthy people that is then invested in various young companies in the hope that the investors will earn huge returns on their money; much greater than if the money had simply been invested in regular stocks or bonds.

Investing is all about risk and reward. If you buy a stock, you take a risk that the price could fall and you lose some money. If you want a guaranteed return of 3 percent, you can buy a U.S. Treasury bond and have no risk at all. But if you want the possibility of a huge return—10 times what you invested, 20 times what you invested, or even more—then you can consider becoming a venture capitalist or investing in a venture capital fund. Always remember, however, that if you want the possibility of huge returns, you have to be willing to take huge risks. You can easily lose 100 percent of your money with a venture capital investment, so be careful.

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There are hundreds of venture capital firms around the world, and they are all ...

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