chapter 2

• Venture capital (VC) fund is organized as a limited partnership, with the general partner (GP) being a VC firm and the limited partners (LPs) usually institutional investors like pension funds
• Limited partners (LPs) of VC funds are mostly institutional investors such as pension funds, university endowments, and large corporations
• When a VC fund is raised, LPs promise to provide capital, known as capital calls, drawdowns, or takedowns
• Committed capital of the fund is the total amount of capital promised by LPs over the fund's lifetime
• The commitment period, also called the investment period, marks the official start of the fund's operations
• Early-stage funds make initial investments in early-stage companies, with some capital reserved for follow-on investments
• Late-stage funds focus on expansion and later-stage investments, avoiding early-stage companies
• Most VC firms keep the same stage focus for all their funds, but some may change focus over time or have a multistage fund
• Early-stage financing supports companies in setting up initial operations, product development, marketing, and sales
• Early-stage companies have tested prototypes, refined service models, and prepared business plans, requiring funding to scale up production and expand market reach
• Venture capital trends include sustainable investing, disruptive technologies, remote work solutions, diversity and inclusion, impact investing, regional startup ecosystems, and blurring sector boundaries
• Seed capital is the initial investment for startups, while early-stage VC targets startups beyond the seed stage with a proven concept or prototype
• Expansion or growth capital supports established companies seeking to expand operations, enter new markets, or scale their business
• Mezzanine financing combines debt and equity, often for mature companies close to going public or undergoing significant events
• Sector-specific VC focuses on particular industries, while corporate VC refers to investments made by established companies into startups aligning with their strategic objectives
• Factors to consider for seeking VC funding include scalability, growth potential, proof of concept, traction, funding requirements, expertise, network, and long-term vision alignment
• Venture capital (VC) is suitable for businesses requiring significant capital for growth, new products, market expansion, or research and development
• If funding needs exceed traditional sources like loans or personal savings, VC may be a suitable option
• Venture capitalists provide industry expertise, mentorship, and networking opportunities
• VC funding involves dilution of ownership and sharing control of the business
• Alignment of long-term vision with VC expectations is crucial for successful collaboration
• Venture capital firms actively search for investment opportunities through networking, industry events, and business proposal analysis
• Due diligence involves assessing financials, business model, market position, intellectual property, and competition
• VC investments can take forms like equity shares, convertible debt, or preference shares
• Specific investment terms are negotiated between the VC firm and the startup
• Venture capitalists provide strategic guidance and mentorship to entrepreneurs
• VC plays a critical role in funding high-potential startups and driving innovation
• Venture capitalists offer valuable industry expertise, guidance, and mentorship to startups
• Venture-backed startups have the potential to create jobs and contribute to economic development
• Venture capitalists understand and manage risks associated with investing in startups
• VC provides startups with essential funding, strategic guidance, and fosters innovation
• VC funding offers access to capital for growth, product development, and talent acquisition
• Venture capitalists bring valuable expertise, guidance, and industry knowledge to startups
• VC networks provide valuable connections to potential customers, partners, and industry experts
• Securing VC funding can provide validation and credibility to a startup
• VC firms aim to build long-lasting partnerships with the companies they invest in
• VC investments carry risks like business failure, lack of liquidity, and dilution of ownership
• Venture capital investments are illiquid, making it challenging to convert them into cash quickly
• Entrepreneurs may experience ownership dilution as additional funding rounds are raised
• VC investments are subject to compliance with securities laws, tax regulations, and contractual obligations