Venture Capital Fund: How does a VC fund work?

but this is the two-minute version about

how a venture capital fund works

actually works like this a few people

called partners decide we want to work

in startups we want to invest in

startups that could be a banger it could

be a VC it could be an entrepreneur we

really want to invest in startups so we

want to do a VC fund and to have enough

money we want to have a BC front of this

of certain size and that could be on a

million dollar but guess what the three

of us don't have enough money to have to

invest in on a million dollar so we go

to someone who has a lot of money we go

to a pension fund

and we say to the pension fund hey let

us invest

in a VC fund that will last for ten

years and in this 10 years the first

three who will invest and after that we

will harvest and our goal is that the

hundred million dollar we will multiply

that with three so dear pension fund you

will get 300 million dollar up so we

have this Hana million dollar we all

happy now we could invest that in a lot

of different ways we could invest it in

two thousand startups or two stocks most

of us decide to say well we invest in a

limited number of startups say 20

because we only are three and we have to

take a active role in that so we

actually saying well we need a number of

startups so we have enough so

representative but not two thousand and

if it some statistics about these

twenty how they will end in early-stage

venture actually approximately 50

percent of them will just die then you

have some will be so so where the VC

fund will maybe get the money back but

in real life it's one out of ten so in

this case two startups they would really

make money on and actually what you then

will realize is that what that have

implications for a startup because we

have promised the pension fund to return

three hundred million so that will

basically mean that we want to get 300

million out so but the problem is a

venture fund does not own the companies

they invest in maybe on average they

invest and own twenty to twenty five

percent so assuming that we have a 25%

stake that actually means that we need

to have an exit value

of 1.2 billion to be successful again we

only own 25% and assuming that that is

mainly covered by the two stops there

that basically mean that each of those

successful startups will be going to

look in will need to have an exit value

of 600 million so if your startup and

want to be an interesting or potential

case for VC fund you need to be able to

make it really really big and that is

basically how a VC fund operates and by

a VC fund operate in a number of small

companies they need to give the money

back to the pension fund early on and

you're only interesting if you can make

it really little bit cool thanks