![]() ![]() Venture capital funds typically invest in a number of startups, expecting some to fail, while hoping for a handful of big winners. They’re often high-net-worth individuals or other financial institutions seeking exposure to the venture asset class. Investors in a venture capital fund are called “ limited partners” (LPs). A GP often follows an investment thesis to select investments, targeting a specific segment of the market and/or stage of investment. A GP is responsible for raising money from a network of investors, selecting investments, and overseeing all of the operational, accounting, and legal aspects of the fund. The manager of a venture capital fund is called a “ general partner” (GP). The proceeds will then be distributed among the fund’s investors on a pro rata basis. Most commonly, a fund will receive returns following a “ liquidity event,” such as an initial public offering (IPO) or acquisition from another company. Venture capital funds earn returns for investors in different ways. Venture capital is a type of private equity, which means investments are not made available on a public market. Venture capital funds are pooled investment vehicles that invest in startups in exchange for ownership in those companies. In this article, we’ll break down the different components of running a venture capital fund, including how they’re structured, how they invest in portfolio companies, and how they generate and distribute returns to their investors. Today, more VCs than ever are investing more capital than ever.Ī venture capital fund can now mean many things-from a traditional fund that invests in a portfolio of companies over a 10-year horizon, to a single-deal SPV, to a Rolling Fund that accepts quarterly commitments. The industry has experienced substantial growth and innovation in the past decade. Venture capitalists make risky investments in startups in the hopes of outsized returns-which is happening with greater frequency. Venture-backed companies constitute nearly half of IPOs in the U.S. Many of the world’s biggest companies (Alibaba, Alphabet, Apple, Amazon, Facebook, Microsoft, Tencent, and Tesla, etc.) started with funding and advice from venture capitalists (VCs). Venture capital is a vital source of funding for high-growth startups across the globe and plays a disproportionately important role in spurring job creation and economic productivity. Funds typically split profits between the fund manager (the general partner) and limited partners.Venture capital funds make money when a portfolio company exits (e.g., via acquisition or IPO), typically within a 10-year timeframe.VCs raise money from a network of limited partners, who can be wealthy individuals or institutional investors.Venture investments are riskier than other asset classes but also carry the prospect for outsized returns.Venture capital funds invest in startups in exchange for an ownership stake in each company.
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