Venture Capital (or VC) fund, is usually provided to assist the growth or promising startup companies. This fund usually comes in stages. And are mostly provided to technology-enabled companies in the finance, engineering and health sectors. But, what really are VC funds?
Definition of Venture Capital Fund
A VC fund is an investment vehicle provided by Venture Capitalists to startup companies that have reasonable growth expectations for a long period of time.
It can also be defined as a type of equity funding provided by VCs to businesses (mostly startups) to aid the growth and expansion of such companies within a reasonable period of time.
It is provided by VCs. This type of fund is provided by venture capitalists. VC firms source for the fund from investors and use such funds to invest in startup companies.
The investors are called limited partners. As a result, they can only lose their investments when things go wrong. That is if the startup fails or liquidates.
On the other hand, Venture capitalists are the general partners. They take the greater risk as their personal properties can be ceased and sold if they can’t meet their debts as soon as it becomes due.
The fund provided can come in a series. Usually stated as series 1, 2, 3 and so on. However, this series is made up of stages. There is the pre-seed stage, the early stage, middle stage and growth stage.
Also, the fund is mostly provided to a certain type of startups. In Nigeria, startup companies that leverage technologies, especially in the Agric, logistics, health and financial sectors, are provided with VC funds.
Many VCs focused their funds on certain geographical regions. A VC may focus it’s funding rounds on businesses in Africa. Another in Asia, still another in Europe.
It is on a long term basis. Most VC funds are on a long term basis. The fund provided is usually more than 5 years. Furthermore, the investee companies are not expected to repay the money.
In most cases, there is an Initial Public Offering in a local or international stock exchange market. There might also be a merger and acquisition of the investee company to a Gladiator company.
VC funds are a pool of funds given to startup firms with little access to funding from the traditional funding style. The fund is used to market a new product, meet working capital obligations and expand the business to other countries and/or regions.