Member-only story
2 Quick Points to Simplify Venture Capital Firms
How companies with high growth potential can raise money in their early stages
Venture Capital, also known as VC, is a form of private equity financing in which a VC firm provides capital to a start-up, early-stage, or emerging company that is seen as having high growth potential. In return for providing capital, VC firms receive an ownership stake in the company. VC is risky but can be very rewarding due to the hope that at least some of the companies that a VC firm invests in will reach a high valuation and either get acquired or become publicly traded.
Some companies that are still private at the time of this article and have been funded by VC firms that you are likely familiar with are Stripe, Coinbase, and Robinhood. In recent years, companies that have gone public and were funded by VC firms include Spotify, Uber, and Airbnb. For the most part, most companies backed by venture capital firms are technologically focused.
When it comes to the names of the most decorated and known VC firms, the list includes New Enterprise Associates, Oak Investment Partners, Andreessen Horowitz, and Sequoia Capital.
Like anything finance-related, VC can get complex. When it comes to understanding how a VC firm operates, the 2 following points that will be answered in this article will help to simplify VC firms:
1. How a VC Firm Gets Started
2. How a VC Firm Makes Money
1. How a VC Firm Gets Started
A VC firm is typically formed through a limited partnership or a limited liability company by general partners (GPs), individuals with industry experience and specialized skills. GPs are the managers of the firm and act as investment advisors for the firm. GPs typically start their VC firm with their own money, but they also go out and raise money from investors such as pension funds, insurance companies, family offices, and high net-worth individuals. These investors become know as limited partners (LPs).
Once the newly created firm has raised enough money for its mission and goals, it will typically hire employees with industry experience to help find companies to invest in. Additionally, the VC firm will…
