Chapter 1 - The VC industry

Question 1

What five main characteristics do VC firms have?

Answer 1

1. A VC is a financial intermediary, meaning that it takes the investors’
   capital and invests it directly in portfolio companies.
2. A VC invests only in private companies. This means that once the investments are made, the companies cannot be immediately traded on a public
   exchange. (defines VC as a type of private equity)
3. A VC takes an active role in monitoring and helping the companies in its
   portfolio.
4. A VC’s primary goal is to maximize its financial return by exiting investments through a sale or an initial public offering (IPO).
5. A VC invests to fund the internal growth of companies.

Question 2

How is a VC fund organized?

Answer 2

Typically, a VC fund is organized as a
limited partnership, with the venture capitalist acting as the general partner
(GP) of the fund and the investors acting as the limited partners (LP).

Question 3

Which categories are portfolio companies divided into?

Answer 3

early-stage, mid-stage (also called expansion-stage), and late-stage. At
one extreme, early-stage companies include everything through the initial
commercialization of a product. At the other extreme, late-stage companies are
businesses with a proven product and either profits or a clear path toward profitability. A late-stage VC portfolio company should be able to see a plausible exit on
the horizon. This leaves mid-stage (expansion) companies, who represent the vast
landscape between early-stage and late-stage. With all this territory to cover, it is
not surprising that mid-stage investments make up the majority of VC investment