How is a venture capital fund structure
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
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