Final answer:
Venture capital firms make financial investments in small companies with growth potential. They provide funding, guidance, and expertise to startups while generating returns for their investors.
Step-by-step explanation:
Venture capital firms make financial investments in new companies that are still relatively small in size but have the potential to grow substantially. These firms gather money from various individual or institutional investors, including banks, college endowments, insurance companies, and corporate pension funds. Venture capital firms not only provide funding to small startups but also offer guidance and expertise on potential products, customers, and key employees. The investors in a venture capital fund receive returns based on the overall performance of the fund.