VC fund

VC is invested at an early stage, in an emerging startup or small business with long-term growth potential after the new company has survived through its formation stage. VCs are normally contributed by wealthy investors, investment banks, or other financial institutions. Capital is pooled into funds called VC funds. VC funds often invest in specific areas in order to pursue preset goals. Venture capitalists manage VC funds. Hence, a VC fund is a PE investment vehicle with an objective of investing in new businesses with high risks and high returns in their early stages. In return, VC funds receive a share of the ownership in the new company. Along with financial support, VC funds can help new companies with their managerial and technical expertise.

Compared to the startups that are invested in by seed money, the risk of the ventures that are invested by a VC fund should have reduced. Another difference is the investment amount, as well as the terms of the transaction. VC funds normally invest a much larger sum of money and involve complex contract terms. On the other hand, the amount of investment capital that's raised in seed money is typically lower.

Other useful facts about VC include the following:

• Including the seed VC funds, a VC investment can be categorized into five different stages: startup stage, early stage, growth stage, late stage, and buyouts/recapitalizations stage.
• The first round of a VC investment is called Series A funding, then followed by Series B, C, D, E, and so on.
• The minimal expected return set by investors on a VC fund is 20% per year so that they are compensated for taking high risks.
• VC is often a primary or the only funding source for startups since, with no or very limited revenues, these startups do not have access to traditional capital markets such as issuing of bonds or public shares.
• Return on VC investment is materialized through an existing action, such as selling the stake at an initial public offering or a merger and acquisition of the invested company by another company.
• VC capitalists usually receive a significant portion of the company's ownership due to the large sum of money they have invested. Therefore, they gain some control over making decisions for the company. When the company has sizable and sustainable revenues, venture capitalists have the ability to appoint a new management team and push out the founding team. This possibility is a major concern to founders of startups.