- Seed Capital / Early Stage: Invest in companies with little or no revenues
- Late Stage / Mezzanine Stage: Invest in companies with revenues
- Balanced: Mixture of above two
Investors usually have to keep their money in the fund for at least ten years. As a result, pension funds, endowments, foundations, high net worth individuals and fund of funds are the sources of capital. In 2008, pensions invested in 50% of all venture capital funds. This was down from 70% in 1990.
There are five stages in the life cycle of a fund:
- Fund raising: Take six months to a year to gather capital commitments
- Finding investments: Take up to five years to conduct due diligence on start-up companies
- Investment of capital: Invest in different companies
- Monitoring and managing portfolio companies: After funds have been invested, the venture capital fund's principals grow the company for an IPO or to be sold to another company
- Windup and liquidation: IPO or sale is closed or company is liquidated
Investing in venture capital takes a lot of patience. The payoff is ten years into the future. The investment has a negative return for the first five years as management fees are collected but no profits are created. This is called the J-curve.
No comments:
Post a Comment