Ever wondered how Venture Capital works? Well, we are here to shed some light on the process that defines Venture Capital.
𝟏. 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐀𝐜𝐜𝐮𝐦𝐮𝐥𝐚𝐭𝐢𝐨𝐧 – Venture Capitalists (VCs) amass funds from Limited Partners (LPs) to create a substantial capital pool.
𝟐. 𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐜 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 – VCs primarily channel these funds into nascent, high-growth potential companies that require capital infusion for expansion.
𝟑. 𝐍𝐮𝐫𝐭𝐮𝐫𝐢𝐧𝐠 𝐆𝐫𝐨𝐰𝐭𝐡 – VCs don’t just provide capital; they actively participate in the company’s growth. They often take up board seats, offer strategic advice, and make valuable introductions, thereby serving as advisors and mentors.
𝟒. 𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐜 𝐄𝐱𝐢𝐭 – After a period of approximately five to ten years, during which the company experiences significant growth, the VC divests its stake through an acquisition or an Initial Public Offering (IPO).
𝟓. 𝐏𝐫𝐨𝐟𝐢𝐭 𝐑𝐞𝐚𝐥𝐢𝐳𝐚𝐭𝐢𝐨𝐧 – The successful exit not only benefits the company but also allows VCs and LPs to reap substantial returns on their initial investment.
𝟔. 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐑𝐞𝐜𝐲𝐜𝐥𝐢𝐧𝐠 – Once all investments have been liquidated and the proceeds have been distributed to the LPs, the cycle begins anew. LPs reinvest their earnings into a fresh set of funds, thus perpetuating the venture capital lifecycle.
