What is Venture Capital? Part 2
Posted on 05. Nov, 2008 by admin in Basics
Yesterday, I wrote about the Partners of Venture Capital as part of my “What is Venture Capital?” articles. Today, we’ll add a bit more detail using some very helpful articles written by Fred Wilson.
For me, an understanding of how the money flows helped immensely:
- Venture Capitalists raise a fund from Limited Partners
- The VCs invest that money into startups, their Portfolio companies
- In return, the VC receives equity (a % ownership of the company)
- The company “exits” (is sold, or has an IPO) at some point
- Proceeds are returned to the fund, sometimes cash and sometimes stock
External Links
Fred Wilson describes Venture Fund distributions in a related post.
Understanding how VC firms are measured is the basis for understanding a venture capitalist’s motivations. Fred’s three part series on Venture Fund Economics is great for more detail if you’re interest. (Part 1, Part 2, Part 3). Part 3 is especially helpful for understanding multiples and IRRs.
One last post on the same subject from David Hornik at VentureBlog.
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