Which form of finance provides funding when banks consider a loan too risky?

Venture capital is a form of finance specifically designed to support startups and small businesses that exhibit high growth potential but also come with significant risk, often deemed too high for traditional banks to finance. Venture capitalists provide funding in exchange for equity in the business, which allows them to share in the company's success if it grows and becomes profitable. This is crucial for businesses that may not have a proven track record or stable revenue streams, making them less attractive to conventional lenders.

The nature of venture capital implies that investors are more willing to take calculated risks in hopes of substantial returns, unlike banks that typically favor low-risk borrowers. This differentiation in risk appetite makes venture capital a vital option for entrepreneurs seeking the necessary resources to launch and expand their businesses when traditional financing methods are unavailable.