Early stage business funding specialist
In this video, Harry firstly outlines the lifecycle of a venture fund, which includes both the commitment and follow-up period. Before moving toward key criteria VCs use when assessing an investment opportunity. Some of which include an assessment of the founders and team, and the market size, dynamics and competitive landscape.
In this video, Harry firstly outlines the lifecycle of a venture fund, which includes both the commitment and follow-up period. Before moving toward key criteria VCs use when assessing an investment opportunity. Some of which include an assessment of the founders and team, and the market size, dynamics and competitive landscape.
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10 mins 59 secs
A key requirement for all VCs will be a firm focus on the growth potential of the venture and how that trajectory matches up against the fund’s target returns. A judgement on the team is very important, as it’s the only real asset an early-stage company has. Further to this, VCs assess key metrics such as the market size, dynamics, and the competitive landscape.
Key learning objectives:
Identify and explain the lifecycle of a venture fund
Understand how venture capital investments perform generally
Outline the measures and factors VCs consider when funding a company
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Once the fund has closed, a VC fund starts with the commitment period. This is the period within which the GPs are able to make new investments, limited so as to give the invested companies enough time to build and exit a company before returning the capital to LPs. During this period, GPs will be:
This comes after the commitment period and refers to the capital that VCs use to invest again into their portfolio companies as they raise a subsequent round. Each VC will look to own a target share of the company upon an exit or IPO, and thus will be carefully judging how much capital each of their invested companies will need in its journey. A portion of the fund is set aside specifically for these follow-on investments.
Subsequent to this, VCs make no new investments and instead support their existing portfolio companies. During this period, all being well, these investments exit through an acquisition or IPO, returning the capital to the LPs.
Only a small number of the total portfolio of investments will generate nearly all of the return for the fund, with the majority scrapping even or losing money. Over 90% of startups will ultimately fail.
Looking at all US venture investments from 1984-2014, 6% of deals produced 60% of the returns. Half actually lost money. For the best funds, the gross return of the best deals was 64.3x.
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