There’s more money than ever in starting up a venture capital firm. Venture capital consists of funds or firms that provide high risk capital with the hope that these provide a great return on investment. The understanding of the structure of venture capital firms is therefore important.
What does a venture capital firm consist of?
There are two main parties involved in VC firms. The first kind is the general partner (‘GP’), who in most cases would be the venture capitalist itself. The second kind is the limited partner (‘LP’), which is usually the person behind the scenes providing the money.
Raising money for your venture capital firm
To start a venture firm, a founder must come up with an idea of why he or she has a unique advantage in investing, or a unique strategy. Further, that future venture capitalist (‘VC’) comes up with a list of all the potential limited partners they wish to do business with, and determine which one is most appropriate for your business idea. The pitching process begins, much like a startup entrepreneur must go pitch to VCs. A VC will pitch to potential limited partners to prove that:
- You display a degree of intelligence.
- That the VC has a strong track record.
- The investment “thesis” or idea of how investments will be decided is really good.
Doing this grants you access to many valuable connections and also forms a robust basis with regard to starting up your firm. Additionally, we recommend you create a portfolio that displays all of your past accreditations and accomplishments to gain further attention from the limited partners.
The legal structure of your venture capital firm
As with all start up firms, it is imperative to register the company. This can be achieved by heading here, which allows for name check availability and fast accessible registration. In regard to the legal structure, it has already been established that the founders of a VC firm are conventionally called GPs and the investors they target are conventionally called LPs. In essence, the VCs are the GPs and make all the investment and management decisions. LPs provide the money, and take majority of all the profit made on a preferred return basis.
What you need to know
While starting a VC firm may seem conceptually enticing, unfortunately the reality is that most of them fail. Entering the years of 2019 have demonstrated that VC firms are losing market share to angel investors and crowdfunding, which means you will be fighting against strong trends. To best differentiate angel investors from venture capitalists, head to “What’s The Difference Between Angel Investors And Venture Capitalists?“. Moreover, for example, less than 1% of U.S companies have raised capital from venture capital firms. This demonstrates that should you proceed to start a VC firm, it is highly recommended you make the right connections and business decisions according to your plans.
What you need
You should have a variety of the nominated traits and or experiences:
- Work experience working for a reputable firm in VC.
- A strong media presence or the desire to create one.
- Awareness of market trends
- Good judge of human character
- Speed of decision making
- Situation awareness
Any further questions to do with “what you need” will be answered by visiting the Venture Capital Overview.
VC firms are the lifeblood of start-ups and early businesses. Indicatively, this makes their existence very important and thus means they must be assisted. Ultimately, in order to succeed, you will need to implement a long-term strategy that will require a great deal of time, networking and capital.