Lesson 3-4 Flashcards
is a critical aspect of investment management, determining how funds are organized, operated, and managed
Fund structure
is a type of investment fund that invests in early-stage startup companies that offer a high return potential but also come with a high degree of risk.
venture capital fund
fund is managed by a venture capital firm, and the investors are?
usually institutions orhigh net worth individuals.
venture capital firm performs a dual role in the fund, serving as both an
**investor and a fund manager. **
As an investor, they usually put in of their own money, %-%? which demonstrates to other investors that they are committed to the success of the fund
1%-2%
the fund manager, they are responsible for identifying investment opportunities, innovative business models, or technologies, and those with the potential to generate high ———–for the fund.
returns on investment
- Manages the fund and make the investment decisions.
- Experienced professionals with a background in finance, entrepreneurship, or technology.
- Responsible for identifying potential investments, conducting due diligence, negotiating deals, and providing operational support to the portfolio companies
- Earn management fees and carried interest (or “carry”) on the fund’s returns
General Partner
- The investors who provide the capital for the fund. They are not involved in the day-to-day operations of the fund. They have the right to receive regular reports on the fund’s performance and to provide input on investment strategy.
- Institutional investors such as pension funds, endowments, and family offices, as well as high-net-worth individuals.
- Invest in VC funds to diversify their portfolios and potentially earn high returns from successful start-up investments.
- The LPs’ capital is committed to the fund for a specific period of time, usually around 10 years, during which the GPs make investments and manage the portfolio companies.
Limited Partner
Responsible for all fund investment decisions and normally invest their capital in the fund.
General Partners
Source investment opportunities and are paid based on deals they close
Venture Partners
Mid-level, investment-focused position. With experience in investment banking or other experience relative to the fund’s investment strategy
Principals
Junior staff with some experience in investment banking or management consulting
Associates
: Industry experts who are hired as advisors or consultants to the venture capital firm temporarily, often to assist with due diligence or pitching new startup ideas.
Entrepreneur-in-Residence
VENTURE CAPITAL FIRM COMPENSATION
are an annual payment made by investors to the venture capital firm to cover its operational expenses. The fee is usually around 2%.
Management fees
VENTURE CAPITAL FIRM COMPENSATION
is a performance incentive paid to the venture capital firm whenever the fund realizes a profit, and typically is around 20% of the total profit distribution. The amount then gets distributed among the employees of the venture capital firm, with the majority going to the general partners.
Carried interest
Return Generation and Exit Strategies
Returns on venture capital investments can only be generated when a position —-
Exited
The three most common ways to exit are:
The fund sells its stake in the investment company to another investor or sells its shares back to the investment company itself.
Direct share sale
The three most common ways to exit are:
another company, usually a large one, purchases the investment company and, in doing so, buys out the venture capital fund.
Acquisition
The three most common ways to exit are:
the investment company goes public, and the venture capital fund sells its shares in the process.
Initial Public Offering (IPO)
firms operate theseinvestment fundson behalf ofinstitutionalandaccredited investors.
Private equity firms
equity describes investment partnerships that buy and manage companies before selling them.
Private equity
Most private equity firms and funds invest in—————-rather thanstartups
mature companies
Private equity funds have a finite term of
7 to 10 years,
specializing in struggling companies with critical financing needs
Distressed investing
