Chapter 2 - The VC and terminology Flashcards
What is a new venture?
A new venture is a new company, those are usually considered as investments that are risky since their cash flow are risky?
What is the difference between management fees and carried interest?
Management fees are due by LPs regardless of the VC performance for a particular fund while carried interest is only due after capital and preferred returns to LPs.
What is carried interest?
Carried interest, or carry, in finance, is a share of the profits of an investment paid to the investment manager in excess of the amount that the manager contributes to the partnership, specifically in alternative investments (private equity and hedge funds). It is a performance fee, rewarding the manager for enhancing performance
What is a VC firm?
VC firms are small organizations, averaging about 10 professionals, who serve as the general partner (GP) for VC funds
What is a VC fund?
A VC fund is a limited partnership with a finite lifetime (usually 10 years plus optional extensions of a few years). Most VC firms specialize their funds by stage, industry, and/or geography. It can be a early stage, mid stage or late stage fund (different strategies of the fund).
What is limited partners?
The limited partners (LPs) of VC funds are mostly institutional investors, such as pension funds, university endowments, and large corporations. When a fund is first raised, the LPs promise to provide a certain amount of capital, which will be provided either on a set schedule or at the discretion of the GP.
What is committed capital?
The total amount of capital promised by the LPs over the lifetime of the fund is called the committed capital of the fund.1
