Venture capital (“VC” for short), is a type of investing where capital is provided to startups that are believed to have high growth potential. By buying equity in a startup, VCs hope that down the line they will make a return when the startup “exits,” either through an acquisition or Initial Public Offering. A number of entities can act as “venture capitalists,” including individuals (“angel investors”), wealthy families (“family offices”), private equity firms, investment banks, large corporations, accelerators/incubators, or most commonly, venture capital firms. Venture capital is “performance-based investing,” in that startups will fundraise multiple times after meeting certain performance benchmarks, meaning that VCs often invest in the same company multiple times (in multiple investment “rounds”).

VCs can be differentiated by three main factors – stage/size of company they invest in, sector focus, and motivation.

• Stage: VCs can focus on very young companies (early / “seed stage”), “series A & B”, and/or growth stage companies (series B, C+). Some invest across a range of company size/stages.
• Sector: VCs can be sector-agnostic, or invest only in a specific sector, such as consumer tech, fintech, biotech, AI, energy, etc. 
• Type/motivation (strategic vs financial vs social):  

Strategically motivated VCs are typically corporate VCs (e.g., Google Ventures). They are commonly either part of the corporate development function within a large company, or a separate subsidiary of that company. While financial success of the startup matters, they will only invest in companies that are strategically relevant to their company – for example, they might want to develop a partnership with the company to improve innovation, acquire the company down the line, or gain insights about where the industry is headed through investing in the startup and participating in its board meetings. 

Financially motivated VCs are typically private VC firms or accelerators/incubators. They typically have a more rapid pace of investment, and larger portfolios (having good chances of success as a fund requires a certain critical mass of investments). In addition, many raise their own funds by pulling together a set of LPs (Limited Partners) to finance investments, which is not something corporate VCs do. 

Socially motivated VCs could be government incubators/accelerators (e.g., MassCEC), or “social venture” organizations (e.g., Village Capital). Often they invest with government or philanthropic funds.