Venture Capital

What is Venture Capital (VC)?

Venture Capital is institutional funding to the startups once they gained some traction in launching their products/ services. Venture Capital follows the initial rounds of financing including angel investing and seed funding. Typically at this stage, there is some evidence of market acceptance of the startups products/ services.Venture Capital happens in a series of rounds (Series A, B, C etc.) and each stage represents a different level of maturity and risk for the investors.Some of the best known venture capital firms in India are Sequoia, Blume Ventures, DSG and Accel.

How is it different from Angel Investing?

Angel Investors invest at the initial stage on the basis of idea, credentials of the entrepreneur and the team. The money that angels invest is almost always their personal money.Venture capital is invested by firms who are professionally run and invest the money of investors who have entrusted them with their money.Though many corporates also have venture capital arms and they invest the capital of their parent company with no external contribution. This model is also known as corporate venture capital (CVC).Similarly, family offices carry out venture capital investments with no external contribution.

What is LP-GP structure?

The external contributors are called limited partners (LPs) and the sponsors of the fund or professionals are called general partners (GPs). The LP-GP structure isolates the eternal investors from liabilities. GPs have a fiduciary responsibility towards LPs.

What is 2/20 structure in context of Venture Capital firms?

2/20 defines the typical commercial understanding between LPs and GPs. GPs pay 2% of committed capital as fees and share 20% of upside with LPs.With this structure, the interests of GPs are aligned with LPs towards generating alpha returns on the investments and thereby sharing the upside.

As a founder how can I get Venture Capital funding for my startup?

Venture Capital firms invest in less than 1% of the deals they evaluate. Venture investing is a tough business and VC firms do a thorough evaluation of their deals to find potential unicorns. See my blog here https://vcify.online/what-is-the-difference-between-angel-investing-venture-capital-and-private-equity/covering this.There are several elements that go into evaluation of startups. Some of them are market size, how differentiated the product is, background of the entrepreneurs, quality of team, stage of the startup in terms of product market fit, margins and visible path to profits.Getting venture capital funding is quite competitive and typically VC firms do not accept any red flag in their evaluation process.If you are founder or an entrepreneur, you could register in our online course “Craft a Startup Investors Will Embrace” to increase the likelihood of your startup or your idea getting funding. After completing this course, you shall get a fairly good idea if as an entrepreneur, you can secure VC funding or not. The course will also guide you on the pivots you need to make in your business model to make it more attractive to venture capital firms.