Venture capital is a special type of institutionalised private equity. It gains its importance in bridging part of the 'financing gap' not only by the focus on firms with a high growth potential, but also by the intense commitment in terms of the selection and monitoring of projects, which helps to mitigate problems of asymmetric information. Equally important, the cash flow is consistently reinvested, so the emphasis is on building up company value rather than on paying out dividends. Even though the general empirical evidence is still scarce because of measurement problems, short time series and severe selection biases, it is still possible to draw the cautious conclusion that venture capital is in many instances essential for the very existence and growth of firms with high risk and growth potentials. Overall, venture capital financing appears to enhance innovation output as measured by patent applications, speed up the time to market, and generally foster investment and corporate employment growth.