High risk and reward. Risk and return are usually a linear function: more risk requires more return. Not all assets offer the same reward size. Venture capital refers to investments in early-stage companies, which can grow faster than costs due to the scalability provided by software technologies. Thus we get a high reward. 90% of startups fail due to a lot of uncertainty. This is because they work in industries like technology where new ideas and competitors can easily disrupt or make a business model outdated. Plus lack of resources. Thus we get high risk. Take a look at how the risk of different types of investments relates to the size of the reward:

Investments. Talking about Venture Capital means we're discussing investments. An investment is an asset (stocks, bonds, etc.) to generate income or appreciation. There are 2 ways of VC financing: debt financing and equity financing. Debt financing is like taking a loan from a bank. Money is lent to a startup, with an interest rate IR to be returned later. Debt financing is usually used for later-stage rounds. Basically, VC investors provide Equity financing. It gives investors a share of a company, plus dividends and decision-making rights. They get a certain number of preferred stocks in exchange for cash. The balance sheet is the best way to visualize how different types of financing work:

Private companies. VC is a part of the private equity (PE) market, but most people in the industry prefer to split VC and PE. VC supports startups, while PE invests in established companies. Companies in the PE market (VC-backed) aren't listed on stock exchanges. Key differences: pricing, liquidity, and monitoring. Take a look at the table below: