May 29, 2020
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing
So how do Venture Capitalists raise funding?
VCs raise funding from limited partners which include family offices, high-net-worth individuals, foundations, pension funds, and other sources.
Institutional investors such as pension funds require a track record so first time VCs focus on family offices and high-net-worth individuals.
Also, the VC fund may be too small. In most cases, institutional investors do not like to be more than a certain percent of any one fund due to concentration limits - usually no more than 20%.
The VC develops an investment thesis which is a reasoning why their approach to selecting and funding deals will be successful.
They build out their investment prospectus which includes the investment thesis, how it’s unique, the fees the limited partners will pay, and how the profits will be distributed.
The VC then meets with limited partners to pitch the investment thesis, track record, and view of the market.
Limited partners look to fund VCs who have a unique investment thesis and access to deal flow they do not.
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