“The key making great investments is to assume that the past is wrong , and to do something that’s not part of the past ,to do something entirely differently.

Donald Valentine


venture capital raise money from financial institutions such as pension funds, foundations, family offices, and high net-worth individuals .investment professionals or general partners develop an investment strategy. Based upon this thesis, it’s timeliness and robustness , investor commits capital to the venture fund .Investors and limited partners seek a blend of strong investment expertise, a compelling investment strategy , and supportive market conditions. Target returns for investors are typically in the range of 20 percent or more on an annualized basis.

The fund raising process can be long and arduous ,taking as much as 18 months , and is often compared to an uphill crawl on broken glass. Many a vc is humbled in this process and can empathize better with entrepreneurs with financial institutions do not return their calls, do not ask them to pitch their fund strategy is seven minutes , offer no feedback, and go dark.

A venture fund is close ended fund. once the target amount is raised or the fund is subscribed ,so new investors are admitted the life of such a fund is typically 10 years. the fund is dissolved after 10 years or when all portfolio investment have been liquidated.

successful firms do not necessarily wait until liquidation of the previous fund ; they raise their next fund as soon as the majority of the capital of the current fund is invested or designated as reserved for existing portfolio companies .Leading venture firms raise a fund every three to five years .Typically , funds are labelled with Roman numerals are a soft indicator of a venture funds ability to survive and to generate returns of success is its ability to generate consistent returns over multiple economic cycles.

How Venture Capital Works

Invention and innovation drive the U.S. economy. What’s more, they have a powerful grip on the nation’s collective imagination. The popular press is filled with against-all-odds success stories of Silicon Valley entrepreneurs. In these sagas, the entrepreneur is the modern-day cowboy, roaming new industrial frontiers much the same way that earlier Americans explored the West. At his side stands the venture capitalist, a trail-wise sidekick ready to help the hero through all the tight spots—in exchange, of course, for a piece of the action.

Where venture money plays an important role is in the next stage of the innovation life cycle—the period in a company’s life when it begins to commercialize its innovation. We estimate that more than 80% of the money invested by venture capitalists goes into building the infrastructure required to grow the business—in expense investments (manufacturing, marketing, and sales) and the balance sheet (providing fixed assets and working capital).

Venture money is not long-term money. The idea is to invest in a company’s balance sheet and infrastructure until it reaches a sufficient size and credibility so that it can be sold to a corporation or so that the institutional public-equity markets can step in and provide liquidity. In essence, the venture capitalist buys a stake in an entrepreneur’s idea, nurtures it for a short period of time, and then exits with the help of an investment banker.

Venture capital’s niche exists because of the structure and rules of capital markets. Someone with an idea or a new technology often has no other institution to turn to. Usury laws limit the interest banks can charge on loans—and the risks inherent in start-ups usually justify higher rates than allowed by law. Thus bankers will only finance a new business to the extent that there are hard assets against which to secure the debt. And in today’s information-based economy, many start-ups have few hard assets.

What Does A Venture Capital Firm Do ?

A venture capital firm identifies investment areas that can generate lucrative returns. It not only acts as the fund manager but also as an investor. Generally, a venture capital firm will also invest its own money as a form of commitment and assurance to its clients.

In lieu of investment, a venture capital firm may seek a chair amongst the directors at the company, and offer expertise and intelligence for better management.

A Typical Venture Capitalist Responsibilities.

A typical venture position description for venture practitioner would read as follows:

Key Tasks And Responsibilities : participate in and contribute to all aspects of the investment process with responsibility for all quantitative and qualitative analysis of portfolio companies and funds.

Analysis: Qualitative and quantitatively evaluate potential transactions , including performing detailed sector and company research and analysis. Conduct due diligence and assist with deal execution and transaction management . Carry out portfolio company analysis ,including valuations and financial modeling .Prepare materials for the investment committee and other internal meetings .

Structuring And Execution :Participate in the development of appropriate deal structures in close liaison with legal team .Work with the legal team to prepare and co-ordinate the execution of agreements, offer letters, purchase agreements , and other legal and transaction documentation

Skills : Solid knowledge of relevant sector{ health care , energy , technology sector}. Transactional experience and analytical abilities . Advance financial , business modeling, and writing skills.

Competencies : Results driven , ambitious , and highly motivated . strategic and commercial acumen. An entrepreneurial approach initiative and adaptability .Team player with a strong work ethic .Well informed on market trends and key players . Excellent networking skills.

Top Venture Funds

The following is a venture capital funds list of top firms in India ( Not in any particular order).

  • Accel Partners
  • Helion Venture Partners
  • Sequoia Capital India
  • Nexus Venture Capital
  • Blume Ventures

Venture capital funds still continue to be one of the top sources of funding for start-ups irrespective of its drawbacks – the foundation of VCFs date back to 1946, in the USA. Georges Doriot, Ralph Flanders, and Karl Compton established the company American Research and Development Corporation (ARDC), which influenced private-sector investment in companies that were being established by soldiers returning from WW2. Georges Doriot is called the father of venture capitalism.

Venture Capital Firm Compensation

Venture capital firms get paid through two revenue streams: management fees and carried interest.

Management fees are an annual payment made by investors to the venture capital firm to cover its operational expenses. The fee is usually around 2%.

Carried interest is a performance incentive paid to the venture capital firm whenever the fund realizes a profit, and typically is around 20% of the total profit distribution. The amount then gets distributed among the employees of the venture capital firm, with the majority going to the general partners.

Investment Risk .

While the returns on venture capital funds can be lucrative, there is a significant amount of risk involved in each investment. Most startups fail and can result in substantial losses to the fund – potentially, a total loss. The earlier the investment stage, the more risk is involved, as less mature, unproven businesses or technologies are more prone to failure.

Diversification is key to managing the overall risk of venture capital investments. Rather than concentrate on one or two investments, venture capital firms often invest in multiple businesses to spread their risk.


The Business Of Venture Capital (second edition ) MAHENDRA RAMSINGHANI.

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