Venture Capital, Explained

Q What are venture capitalists? — M.B., Whitefish, Montana

A They’re investors who often

take stakes in young and small companies that need infusions of cash to help them grow.

Venture capital (“VC”) investors will hear many pitches for their money, such as from entrepreneurs with startup businesses. When they decide to invest, buying a partial stake in a company, they’ll frequently offer guidance to its management as well, to help the company grow.

A VC investment is generally not long-term. Ideally, the small company will grow well, and after a few years will either be bought out by another company or will debut on the open market via an initial public offering (IPO). At either point, the VC investors can cash out, netting a nice profit.

For example, Sequoia Capital invested $60 million in WhatsApp early on, and exited with $3 billion when it was bought by Facebook. Meanwhile, Greylock Partners

plowed $4.9 million into Airbnb — a stake worth roughly $1.4 billion at Airbnb’s 2020 IPO.

Q Is this a decent time to start contributing to a 401(k) account? — P.W., Forest Acres, South Carolina

A It’s just about always a good time. Sure, the market has been especially rocky lately, but when share prices are down, you’ll be getting more of them for your dollars. And over the long term, the market has always gone up.

Be sure to contribute at least enough to qualify for all available matching funds from your employer, as that’s free money. Also consider saving and investing much more than that in your 401(k) or elsewhere — you might aim for 20% or more of your income — to build a hefty nest egg for your future.