The impact of venture capital on Western industrial economies, in recent years, has been immense. It has backed new industrial enterprises that could not have taken shape in any other way. Venture capital transactions have facilitated large-scale restructuring by making possible the division of large industrial organizations into smaller, more efficient units. Other transactions have enabled small industrial units to grow. From the point of view of managers of industrial enterprises, venture capital backing has often been regarded as more satisfactory than going to the stock market, with the unpredictable consequences of ownership by large numbers of shareholders.

There is no universally accepted definition of venture capital, but for the purposes of this entry it refers to capital that meets four criteria. First, venture capital is provided by institutional investors or by funds, rather than individuals, put together for investment in certain types of transaction. Second, it is invested in companies that are not listed on a stock market. Third, investment opportunities are identified by the managers of the institution or fund as being likely to yield a rate of return commensurate with the risk. Fourth, the essential core of venture capital is equity, which provides the investor with the potential of substantial capital growth. However, equity is commonly geared up with debt, and a range of other financial instruments may be involved.