Types of Venture Capital Funds

Let’s do a quick review of the types of venture capital funds. VC firms differ in their investment approaches. Some companies

– Invest for a quick turnaround, by going public-selling within the public equities markets

– Invest for the long-term, planning for slower growth, but strong tax benefits

– Invest in new ideas

– Invest only in their areas of expertise

– Invest anywhere in the world, as long as potential profits are strong

– Invest in fledgling and start-up companies

– Invest in established and profitable companies that need expansion assistance

– Invest only in certain, defined industries

– Invest only locally or regionally

– Invest only nationally

– Invest only internationally

Venture Capital Firm Players

Venture capitalists (VCs) usually come from a finance or an operational experience background. It is, in fact, surprising how many VC firms have at least one Harvard MBA with investment banking or corporate finance experience working at them. They almost all have consultants or partners with heavy experience in the fields in which the company invests.

Although the titles are not entirely uniform from firm to firm, other positions also exist at

VC firms.

Typical positions and background information for fast track VC personnel:

1. Partners

a. This is the top-level position within the firm.

b. Partners almost always own part of the company and may, in fact, be a founder.

2. Principals

a. This is generally a mid-level position.

b. The incumbent is normally being considered for partner.

c. Most principals will be promoted from within, after extensive experience.

d. May have investment banking or related-category management consulting experience.

3. Senior Associate

a. Incumbents can hold Low to Mid-Level Positions.

b. Anticipate being considered for Principal.

c. Hired from within or outside the firm, based on category or financial background.

d. Expected to have 5 plus years’ category management consulting experience or investment banking experience.

e. They are generally involved in and mentored in investment decisions in an attempt to “bring person along.”

4. Associate

a. Lower-level position.

b. With seasoning and professional maturity, may move into Senior Associate position.

c. Hired from within or outside, based on category or financial background.

d. Usually possesses 1-2 years related category management consulting experience or investment banking experience.

5. Entrepreneur-in-Residence (EIR)

a. Almost always specific category experts.

b. Perform critical due diligence for firms in that category.

c. Usually time-limited employed (less than 2 years) by VC firm.

d. Locate and present start-up ideas to VC firm.

e. Eventually could be hired by the VC firm as a Senior Associate or higher.

Why Venture Capitalists? (Again…)

Many people come up with brilliant ideas but lack the capital to put them into practice.

Writers maintain that even an average person can come up with an idea so outstanding that if the person followed up and made it work, they would become wealthy. Because of their expertise in a related field, VC firms help the idea person start their business, and through mentoring and financial assistance, bring that idea to fruition.

This mentoring is crucial because VC firms may have enormous experience in a dozen businesses similar to the one the “idea person” has developed, and know what will and will not work.

Of course the firm is handsomely rewarded for those inputs.

Key Points of How Funds Are Structured

– Most VC funds are designed to last between 8-12 years (with 10 years being the norm) depending on how quickly the fund can be liquidated after maturation and the need for the investment in the company’s liquidity.

– The investment cycle usually lasts at minimum three years and usually extends to seven years or longer if the company has “gone public.”

– It can take a few days up to several years to raise sufficient money from limited partners to provide enough money for their fund.

– A fund is considered “closed” after the target amount of money has been raised, and the life of the fund then begins with a predetermined end date.

– A firm may have a partial close when part of the money has been raised.

Dr. Brent Lundell owns http://www.GainStreamGroup.com, a venture capital sourcing and consulting company, and is a partner in The Guinn Consultancy Group, Inc. The Guinn Consultancy Group provides a wide array of business services, including seminars, webinars, and venture capital sourcing services.

Dr. Brent Lundell owns http://www.GainStreamGroup.com, a venture capital sourcing and consulting company, and is a partner in The Guinn Consultancy Group, Inc. The Guinn Consultancy Group provides a wide array of business services, including seminars, webinars, and venture capital sourcing services.

Author Bio: Dr. Brent Lundell owns http://www.GainStreamGroup.com, a venture capital sourcing and consulting company, and is a partner in The Guinn Consultancy Group, Inc. The Guinn Consultancy Group provides a wide array of business services, including seminars, webinars, and venture capital sourcing services.

Category: Finances
Keywords: Finance,Business Funding,Venture Capital