Venture capital and investment banking are two of the most important driving forces behind business growth and economic prosperity. They help startups, small businesses, and large businesses source funding. Both venture capitalists and investment bankers must assess promising investment opportunities, weigh risks, and decide where to invest funds for business growth.

Although they are both integral parts of a business's growth, they differ in many ways. In this guide, we will compare the roles of venture capitalists and investment bankers and the roles they play in a business's maturity.

Let's first discuss each individually to better understand the differences between venture capital and investment banking.

What Is Venture Capital?

Venture capital (VC) is a type of private equity funding. In this part of the finance industry, venture capital funds will make money or capital investment into a company. The investment may also be technical or managerial.

The process of venture capital funding is a complex one that involves many steps. First, a venture capitalist will conduct a thorough analysis of the company they are considering investing in. This analysis will take into account factors such as the company's management team, the market for their product or service, and the competitive landscape. Once the venture capitalist has determined that the company is a good investment opportunity, they will negotiate the terms of the investment with the company's management team. This may include the amount of money that will be invested, the percentage of ownership that the venture capitalist will receive, and the timeline for the investment.

Typically, the core concern of venture capital is to seek out potentially profitable startup companies and small businesses that may undergo long-term growth. This type of investment is mainly focused on small companies that show promising growth potential rather than large enterprises. However, venture capital firms also invest in larger companies that are looking to expand or enter new markets.

Although investing in smaller companies and new startups can be risky, the venture capitalist has the benefit of being able to enjoy above-average returns. This is because the venture capitalist is able to invest in companies at an early stage, when the potential for growth is high. As the company grows and becomes more successful, the value of the investment increases, resulting in a higher return for the venture capitalist.

Venture capital funding is one of the most popular forms of funding for new companies, startups, and ventures who cannot raise money through bank loans. Banks tend to avoid giving loans to startups and small businesses that don’t appear to have any credit of their own. Businesses that are rejected startup loans then seek out venture capital companies.

In this way, venture capital is part of the core economic engine that generates job growth, spurs innovation and invention, and helps cultivate new business models. Venture capital firms play a crucial role in the growth and development of the economy, by providing funding to innovative and promising companies that may not otherwise have access to the capital they need to succeed, making venture capital an essential component of any startup business plan.

Largest Venture Capital Companies Worldwide

Here are a few more of the largest venture capital firms in the world:

  1. Andreessen Horowitz: Andreessen Horowitz is a California-based venture capital firm that was founded in 2009. They invest in companies across various stages, from seed to growth, and across multiple industries, including software, fintech, and healthcare. Some of their most notable investments include Airbnb, Lyft, and Slack. Visit their website
  2. Kleiner Perkins: Kleiner Perkins is a venture capital firm based in Menlo Park, California, that has been investing in technology startups since 1972. They have invested in companies such as Amazon, Google, and Twitter. Kleiner Perkins has also been involved in the funding of many successful startups like Slack, Ring and Discord. Visit their website
  3. Bessemer Venture Partners: Bessemer Venture Partners is a global venture capital firm that was founded in 1911. They invest in companies across multiple industries, including cloud computing, cybersecurity, and healthcare. Some of their most notable investments include Pinterest, Twilio, and Shopify. Visit their website
  4. Index Ventures: Index Ventures is a venture capital firm that was founded in Switzerland in 1996. They invest in companies across multiple industries, including fintech, healthcare, and cybersecurity. Some of their most notable investments include Dropbox, Squarespace, and Slack. Visit their website
  5. GV (formerly Google Ventures): GV is the venture capital arm of Alphabet Inc., Google's parent company. They invest in early-stage companies in various industries, including healthcare, artificial intelligence, and cybersecurity. Some of their most notable investments include Uber, Nest, and Slack. Visit their website

These firms have a strong reputation for investing in successful startups and have played a significant role in shaping the technology industry. They continue to be major players in the venture capital world and are always on the lookout for promising new opportunities.

What Is Investment Banking?

Investment banking is a type of banking that provides various services to companies, governments, and other organizations. Investment banks help these entities raise capital by underwriting new securities. Underwriting means that investment banks buy the securities from the issuing entity and then sell them to investors. By doing so, investment banks assume the risk of the securities' sale and guarantee the issuing entity a certain level of funds. This guarantees the issuing entity a certain level of funds even if the securities do not sell as expected.