Venture capital firms structure
The article will cover the understanding of a venture capital idea of funding small businesses and differentiating between private equity vs venture capital best financial options to get maximum profit in the future.
Understanding a general idea of the structure of VCs
VCs that are venture capital firms are supposed to be special money organizations providing funding from alternative sources to early companies to manage their performance in order to get expected profit. These collective capital sources include:
- some institutional funds
- Net investors
- Family offices
The specific amount of money varies in size from different venture capital firms according to their principles of work. Generally, they provide funding for startups to help them dominate in marketing industries and increase their growth. Sometimes, new investors can’t get in touch with the best start-ups through preferable venture capital firms. Funds require special areas for the previous investors who are beneficial for the firm. You cannot easily move to the top priority place to get the best of companies to apply for funding.
The importance of VCs to the development and prosperity of startups is realized in the following issues:
- The majority of startups require venture capital firms for their stability in marketing industries. For example, Facebook and Google used this type of funding rather than wait for personal profit first.
- The tricky thing is that an investor will never know if the startup fails and he could get nothing from his investment.
- Traditional sources of funding apply taxes and fixed percentages, while VC will get more of the funding raising their money in case of success.
VC funds important for startups
Individuals and parties who give their money to VCs are dealing with special fund managers whose responsibilities are investing the collective capital to top priority startups and handle the great advantage of the investment. Generally, such firms operate above $200 million in VC every year. The special amount of money is spread with several startups or a single company as well.
Limited partners who are LPs are parties giving money to venture capital firms. They usually get funding from their family offices, pension and university funds, individuals. General partners who are GPs are managers of funds, who care much about searching for the right startup, providing funding, and getting returns to LPs. Their job peculiarities include:
- Getting money from LPs
- Searching for the best young companies
- Due diligence performance
- Providing fund support to the suggested company
- Giving feedbacks to LPs
- Managing the whole process of funding including introductory meetings, dealing with an agreement, and managing the startup activities
- Responsibility for increasing investment returns.
VCs provide funding and support to different types of startups involving many marketing issues in order to maximize the feedback and returns of investments.