We talk to startups and investors, you get the value.
We talk to startups and investors, you get the value.
We continue to consider the main source of financing for startups — venture funds. In the first part of the article, we have already learned what a venture fund is and that it differs from a venture company, also we got acquainted with the classification of funds by investment stages. In the second part of the article, we will realize how a venture fund works, as well as get acquainted with the world's largest venture funds.
Venture Fund: what is it and how does it work? It is time to give an answer to this question.
The life cycle of a venture company, and later of a fund, begins with the formation of a team. Here are the roles:
General Partner, or Managing Partner, or Founding Partner of a venture company.
A limited liability partner, a venture capital partner, is an investor targeted by a venture capital firm. As a potential investor — Limited Liability Partner can be both wealthy people and family offices, corporations, charitable funds, pension funds, and other funds.
The director is a mid-level staff representative for a venture capital company.
An associate is a representative of the junior staff of a venture company.
Consultant — entrepreneur, industry expert with a high level of knowledge in a certain field, who is temporarily hired as an adviser and consultant to a venture company.
Then there is the attraction of capital: when a venture capital company seeks investors for a new fund. Depending on the reputation of the company, the market, the fund’s strategy, the process can take several months to several years. Once the trust fund is reached, the fund closes the fund for new investors and initiates the investment period during which the fund’s portfolio will be formed. The investment period lasts for several years, during which the fund team searches for suitable projects for investment and provides them with resources that should eventually increase the chances of a profitable exit.
The Venture Innovation Fund is interested in looking for promising startups. In the first stage, the team searches and studies projects that are suitable for the fund in terms of indicators, themes, areas. Foundations have several sources of such projects:
The projects themselves send requests to the funds offering cooperation;
Interaction with start-up incubators, accelerators, participation in innovation and start-up events;
Word of mouth and partner advice, search through social media — often this is the way that brings the most promising startups into the portfolio.
The best venture funds in the world prefer to invest in projects in the following areas:
Startups that develop a promising new product and are in need of funding;
Young companies that have already introduced an interesting product — usually information technology — to the market and also need investment to develop the product and/or scale up the project;
Well-known market players who are interested in additional funding to scale up their activities, launch additional products.
After the fund finds interesting ideas among the received projects, it begins to communicate with the founders. Even if the project is well designed and the market likes it, a team, its software and hard skills are often important to the fund, how it communicates with each other and how open it is to the foundation’s representative.In addition, familiarity with the team makes it clear how high the risks are, that at some point people can just quarrel and run away, which is likely to result in the project’s death.
When the projects for the portfolio are selected, the approval of the founders is received, the documents are signed and the project receives the first tranche of funding.
After the project becomes part of the portfolio, it undertakes to inform the investor about the development of the product, to send the results of the work in a specified time. From the fund part, it provides advice to the team, as well as assistance with netware, educational products and invites to its events.
Thereafter, after the project has received all the promised money, the fund can sell its share/equity in the company and ideally earn a return in excess of the original investment.
Unlike bonds or shares with dividend payments, income from venture investments can be obtained only when a position is closed. For example, a fund can sell its share in a startup to another investor or to the startup itself, or another way to generate income is through an initial public offering (IPO), when the company in which the fund invested becomes public and the fund sells its shares.
The general life cycle of the fund lasts from five to seven to a couple of decades and ends with the closure of all transactions and the redistribution of profits between investors.
The top of the world’s venture capital funds is constantly changing due to the changing positioning of some funds, but the list of venture capital funds whose names and, more significantly, portfolio projects are known worldwide, has generally remained constant as far as participants are concerned. This is the rating of venture funds as of February 2021 according to SharesPro.
1.GV. This venture capital company with 78 portfolio investments in 2020 and a total number of investments — 802 — tops the list of venture funds. The number of exits for all time is 184. GV was founded in 2009, is based in California, the most profitable investments that have been made are Uber, Slack Technologies, Ripple and Cloudera.
2. Insight Partners. In 2020, the company had 78 portfolio investments, and for the entire period of operation since 1995 — 486 investments, the total number of exits — 111. The headquarters is located in New York. In the portfolio — Twitter, shopify, WIX.com, DocuSigh.
3. Bessemer Venture Partners. In 2020, the company made 81 portfolio investments, and for all the time it has invested in 1,043 projects, which is certainly impressive. The number of exits for all the years of work is 221.
4. Index Ventures. European venture funds did not stand aside, and Index Ventures with 66 portfolio investments in 2020 is a good example of this. The company has been fun since 1996, during which time it has made 864 investments and 183 exits. The headquarters is located in London, companies such as Dropbox, Robinhood, Figma, Notion, Slack have visited and/or are now in the portfolio.
5. Sequoia Capital. The largest venture funds would be represented by an incomplete composition without mentioning this company. Sequoia capital china is what you should enter in the browser search bar if both you and your project are ambitious and have already proved that the market likes you.In 2020, the venture capital company added 101 companies to its portfolio, the total number of investments over the entire period of its existence is 1,438. According to CrunchBase, Sequoia Capital is the second venture capital company in the world in terms of the number of exits: it had 304 exits during its entire operation. The fund has invested in Airbnb, WhatsApp, LinkedIn.
6. Accel. In 2020, the fund made 114 portfolio and investments, and in total during its activity — the venture company was founded in 1983 — 1,514 investments The number of exits for all time is 306. Facebook has been in the fund's portfolio.
7. Lightspeed Venture Partners. 89 portfolio investments for 2020, the total number of projects for the entire period of operation since 2000 — 889. The number of exits is 173.
8. A significant player in the global venture capital industry is General Catalyst. In 2020, the company made 83 portfolio investments, in total 777 companies visited its portfolio, including Airbnb, HubSpot, Snap Inc.
9. Andreessen Horowitz. In 2020, this venture investment fund invested in 91 projects, for the entire period of work-the fund appeared in 2009 — 879 companies visited its portfolio, including Slack, Robinhood, GitHub.
10. The last in the top is the venture capital firm GGV Capital with 66 investments for 2020 and 664 portfolio companies for the entire period of operation.
By the way, the list of world venture funds would be incomplete without Khosla Ventures. This foundation, which specializes in eco-friendly technologies, cloud computing and mobile technology, is not in the top ten, but has fallen short of the top ten. The total number of portfolio investments in 2020 was 71, with a total of 853 companies. During its existence, the venture capital company had 116 exits.
We have given basic information about venture funds, and further actions are up to you!