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VentureBits.com

Helping Entrepreneurs Succeed

Venture Capital (VC or Venture) is a type of private equity capital that is invested in early-stage, high-potential, growth companies with the expectation of generating a high returns through an IPO or sale of the company.

It’s pretty simple, VC’s invest in high-risk, high-return businesses. Now that you have a general sense of what venture capital is, I would like to illustrate how a VC firm actually operates.

Limited Partners – These are the companies, pension funds and wealthy individuals who invest their money in the venture capital fund. Usually the minimum investment for an LP is $1 million and can be as high as $100+ million.

Venture Capitalist – We get limited partners to invest their money in our fund. We use 2% of that money to pay our salaries, rent, travel, etc. and the rest is invested directly into the entrepreneurs.

Entrepreneurs – Entrepreneurs receive investment from the venture capitalist and they grow their businesses with that cash. They take $1 and are expected to return $10 ($5 wouldn’t suck though!)

That’s really it. Obviously its a bit more complicated than that, but generally speaking, that’s how venture capital works. As venture capitalists, our job is to invest the LP’s money with the best entrepreneurs, and then do everything in our power to help make those entrepreneurs successful.

The main point of this post was to provide a high-level overview of what venture capital is. A secondary point I wanted to illustrate, that may be even more important, is that venture capitalists want entrepreneurs to succeed. It’s a collaborative process and everyone involved needs to keep in mind that we’re all pulling on the same rope!

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