Venture capital (VC) firms are pools of private capital that typically invest in small, fast-growing companies that can't raise funds through other means. In exchange for this financing, VCs receive a share of a company's equity, and the founders of the firm typically stay on and continue to manage the company. A VC firm wants management to focus on improving , while the managers may also act to increase . VC investments have two typical components:. (1) managers maintain some ownership in the company and often earn additional equity if the company performs well;
(2) VCs demand seats on the company's board. Management ownership serves to the alignment of the incentives of managers with the incentives of owners.