Table of Contents
Table of Contents
Share this

How to Invest in Venture Capital: A Step-by-Step Guide

October 18, 2022

Venture Capital’s equity yields huge paydays if the startup is sold, goes public, or if the company fails. Other possible risks include illiquidity and less transparency.

Share this

Every investment opportunity is a balance of risk and reward. Playing it safer means less chance of huge losses, but also limited upside. High-risk investments can mean there’s a chance to lose it all—or make big gains.

Venture capital falls squarely into the second category. Venture capitalists could reap huge payouts if the company they invest in succeeds and is sold or goes public. Or, as is the case more often than not, the company never becomes profitable or even fails, resulting in a complete loss.

What is venture capital?

Venture capital, or “VC” for short, is an umbrella term for funding provided by investment firms and individual investors to young, privately held companies that they believe have attractive growth potential. Venture capital funds are usually raised in rounds (after angel investors provide seed money in the earliest stages of the company), from Series A to Series D and sometimes beyond.

Startups with VC backing enjoy the benefit of raising funds without having to take out expensive bank loans, putting that capital to work to expand. In exchange for funding, startups usually fork over equity, or partial ownership, in the company to the VC firms. But there is no guarantee that a company in its early stages will profit—or even survive—over the long term. 

In the event that the startup is sold or goes public in an IPO (known as an “exit”), the VC can liquidate their ownership, likely selling it for much more than they paid for it when they made the investment. If neither of those happens—and in many cases they don’t— the venture capital firms’ investments might wind up being worthless. High risk, high potential reward.

Can anyone invest in venture capital?

Not everyone is allowed to make venture-capital style investments. That’s because shares in privately held companies are unregistered securities—meaning they aren’t registered with the Securities and Exchange Commission (SEC). 

Companies register with the SEC when they have an initial public offering (IPO) and get listed on a stock exchange. Once that happens, the company can raise money by selling shares to the general public. Before they go public, they aren’t registered, and the SEC limits the buying of unregistered securities to “accredited investors.” These are individuals or entities that are either wealthy or financially knowledgeable, based on specific criteria set by the Securities and Exchange Commission. 

Accredited investors have several unique investing opportunities available to them that may not be in reach for other investors — including startups, private equity funds, peer-to-peer (P2P) lending platforms, real estate crowdfunding, initial coin offerings (ICOs), and more. 

The SEC established accredited investor requirements in 1933 to make sure would-be investors really do have the capital to invest, and/or that they understand what it means to invest in ventures that are in their early stages. But the definition of who qualifies as one has evolved over the decades. In August 2020, for example, the SEC expanded the definition to include individuals who can qualify based on their professional knowledge. 

An individual may qualify to be an accredited investor based on one of a few different factors. They must either:

Try Titan’s free Investment Calculator to project your potential investment returns.
Learn more
  • Earn more than $200,000 annually over the past two years and expect to earn at least that amount in the current year; people with spouses (or spouse equivalents) can also qualify if their combined income is more than $300,000
  • Have a net worth of at least $1 million, either individually or combined with a spouse or spouse equivalent
  • Demonstrate financial expertise by obtaining and keeping in good standing one of three professional certifications, all of which require passing exams: a representative license (Series 7), an investment advisor representative license (Series 65), or a private securities offerings representative license (Series 82)

Certain types of entities also qualify as accredited investors. These include:

  • Financial institutions such as banks, insurers, or registered investment companies. 
  • Organizations that have $5 million in assets or investments, including VC firms, limited liability companies (LLCs), Indian tribes, family offices, funds, and more. (Note, however, that entities may not qualify if they are created with the sole aim of making an investment or investments that are limited to accredited investors).
  • Entities that are owned entirely by accredited investors, including VC firms.
  • Employee benefit plans that have more than $5 million in assets, or plans for which a bank, insurer, or registered investment advisor makes the investment decisions.

Investors who are not accredited can still invest in startups, however, albeit in a different way. Crowdfunding is a relatively new method that companies can leverage to raise capital from founders’ personal, professional, and social networks. Contributors may simply donate money to help the business grow with no expectation of anything in return, or they may give funds in exchange for a “reward”—something as little as a thank-you note or a larger reward like discounted goods or services from the company.

Non-accredited donors can also give money in exchange for equity, though the SEC limits both how much companies can raise through crowdfunding and how much non-accredited investors can invest across all crowdfunding platforms. Funds may also be pledged as a loan that the company repays, with interest, by a set deadline.

What are the risks when investing in venture capital? 

These unique investment opportunities do come with potential risks, including:

  • Many venture-funded companies fail.  VC funding has backed some of the most innovative U.S. companies, including tech behemoths Apple and Amazon. But for every smash success, there are many less-happy endings: The National Venture Capital Association estimates that 25% to 30% of VC investments fail, while another 30% to 40% return only their investors’ original capital with no profit. Some estimates put the failure rates much higher. This is arguably the biggest factor looming over a VC’s decision about investing in companies, and if so, which ones?
  • Lack of liquidity. Unlike investors in traditional financial securities that trade in public markets, VCs can’t just pull out their cash whenever they want. On the contrary: It’s a long-term, highly illiquid investment. VCs may end up waiting years to get back even their original investment–if that. If a startup goes bust, that investment could vanish.
  • Less transparency. While startups typically share some financial data to persuade VCs to invest, they’re still early-stage and privately held. So VCs won’t have the type of information that they would get from publicly traded companies, including the mandated quarterly financial reports, analyst research notes, or investor days. It can also be difficult to benchmark a startup’s performance against others in the field, particularly if it’s a niche company or part of an emerging industry.

The bottom line

Venture capitalism is an example of a high-risk, high-reward capital investment: In exchange for funding an early-stage company, venture capitalists usually receive an equity stake in their portfolio companies. VCs, whether individuals or entities, must be accredited investors as defined by SEC guidelines, which include qualifications such as net worth and expertise.

VCs’ equity stakes can yield huge paydays if the startup is sold to another company or goes public on the stock market—or the investment could end up being worth nothing if the company fails. Other risks of this type of investment include illiquidity, less transparency, and VC firms’ high management and performance fees.

If you’re ready to start growing your capital, Titan is ready for you. Our team of exceptional investment analysts manage hundreds of millions of dollars, investing our clients in actively-managed, long-term strategies with an eye on massive growth potential. Through our award-winning app, you’ll ride shotgun with some of the smartest investment minds in the business. Sign-up takes minutes: get started today.

Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.

Titan partner

Become the smartest investor you've ever been. Titan's editorial partners have cut their teeth at The New York Times, Wall Street Journal, Time, Inc., and Bloomberg.

Titan is the future of investing

Ready to become a client?

Create an account with us in two minutes.

Get Started
Or scan to get the app

Keep reading

Related Calculators

Common investment questions

Here are a few other common ones. If we haven’t answered your question, feel free to reach out to us at 
We’re here for you.


Get Started