A specific type of private equity, venture capital focuses on start-up businesses that are at an extremely early stage in their business development. Venture capital firms provide start-up money for these companies and see a return when the company issues stock, or when another company purchases it. That return on investment usually does not come through for about 10 years, if at all [source: National Venture Capital Association]. Because venture capital firms invest at these companies in such an early stage, their investments are quite risky. However, they spread their capital over a broad array of companies to minimize that risk for the entire firm [source: Mendicino].
On the downside, most venture capital funds require a high minimum investment and a net worth of around $1 million for individual investors. Venture capital is also extremely illiquid; investments are usually tied up for a number of years before they can be converted to cash [source: Mendicino].