The term venture capital (VC) is used for a variety of investment scenarios that help entrepreneurs fund the growth of their business through outside investment/debt.
The prototypical venture capital transaction involves a professional venture capital fund, investing money in exchange for preferred stock in a company. Professional VC funds invest as a full-time job and typically expect to have a board role in helping to grow the companies they fund. VC investments come with a need to eventually exit their investment via M&A or IPO -- so returns can be distributed to the limited partners and general partners invested in the VC funds.
There are many variations from that standard that are, rightly or wrongly, still referred to as venture capital. Some of those variations include non-professional investors (friends/family, angels, investment bankers, corporations). Some also fund via debt instruments or purchase common stock instead of purchasing preferred stock. Some expect to have full-time management roles, while others offer money but no additional value-add. Venture capital is often associated with early-stage companies, but it can span stages to overlap with mezzanine, hedge and LBO-type funding.
The venture capital asset class is part of the broader category of "alternative investments" that institutional investors (foundations, endowments etc.) use to diversify their portfolios, typically with a higher risk and return expectation than other asset classes such as public stocks, bonds or treasuries.
My experiences and my venture capital blog: http://www.FloridaVentureBlog.com/