Once a company goes public and the price of its shares go up I guess some investment firms can make money that way. But how do investment firms that invest in non-public companies (e.g. small startups) make money? Do they just keep on investing until the company goes public and they can reap profits (through stock prices etc.)?
In: Economics
This is called venture capital and if early enough, angel investment. Two main ways.
1) Many small companies are acquired by larger companies.
2) IPO. The IPO price typically returns many multiples of the amount invested.
In many tech companies, option 1 is more likely than option 2. To spread the risk, venture capitalists usually invest in multiple firms, relying on the rare successes to pay back for the more common failures and still leave significant profit.
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