Venture Capital funds (VC funds) have become one of the most exciting areas to invest in the last few years, deploying billions of dollars of finance into innovative early-stage businesses. Last year, global venture investment totalled $643 billion, almost double the 2020 figure, and ten times the size of the market just a decade earlier. Most of this cash originates from one of the thousands of VC funds around the world.
But, as one of the smaller asset classes, venture capital funds don’t always receive the same level of attention as their colleagues in the private equity and broader asset management space, and historically they’ve sometimes been seen as a bit mysterious. Here is an overview of exactly what constitutes a venture capital fund, how venture capital funds work, and the different types of venture capital funds out there, while also providing some advice on how family offices should go about choosing a venture capital fund to invest in.
What is a venture capital fund?
In essence, a venture fund is a pool of capital that is specifically aimed at investing in early-stage companies with strong growth potential. Investors in a VC fund are called limited partners (LPs), while the individual or company that manages and deploys the funds is called the General Partner (GP). GPs deploy capital to acquire stakes in startup companies, with a view to making a high return when the company exits – whether through an acquisition or an IPO.