Where Do Venture Capitalists’ Moneys Actually Come From?

Most people know that many companies were built in part with the help of venture capitalists.  Although most attention goes to technology companies such as Google and Genentech, some non-tech companies such as Starbucks and FedEx also raised VC early in their lives.

However, many people probably don’t think about where VC’s funds that help startups to grow actually come from. So today we will look at the origin of dollars that VCs invest in startups.

The bulk of VC’s capital comes from large institutions such as pension funds, endowments of hospitals and universities, charitable foundations, very wealthy families, corporations and insurance companies.  A smaller percentage of the total capital in the venture capital ecosystem originates from high net worth individuals.

Many large institutions invest directly in VC funds, but others will invest indirectly through a range of different intermediaries. There are a lot of intermediaries for private equity and venture capital investment. The main ones include advisory firms and Fund of Funds (FoFs).

Although pension funds are the largest contributor, they are also very conservative with respect to venture capital allocations. Foundations and endowments are comparatively more aggressive and give bigger portions to VC asset classes. Intermediaries follow the guidelines that are established by their sponsors.

References

https://www.thebusinessofvc.com/blog/lp-universe

https://agilevc.com/blog/2014/10/29/where-do-venture-capital-dollars-actually-come-from/

 

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How the U.S Government Regulates Venture Capital

The U.S. Securities and Exchange Commission (SEC) regulates venture capitalists and their private equity firms. Venture capital is subjected to same basic regulations as any other form of private security and investment. A large amount of venture capital is provided by banks, and therefore, know-your-customer regulations and anti-money laundering regulations can apply. One of the most notable regulations unique to VCs is that they are not allowed to make any solicitations or advertise.

VCs help fund start-up firms and small business that are likely to have high levels of long-term growth. They make their returns through the ownership of many company shares. This is riskier than normal equity investing, and since the internet bubble crash, it has gained a particularly suspicious reputation.

Private equity firms are required to register with SEC. They are also subject to information reporting requirements unless their capitals are considered as qualified venture capital-less than $150 million capital.

Most regulations on investors and equity investments hinge technical definitions that have been put in securities legislation. SEC and Congress have changed the definition of VC on many occasions, leading to different equity financing practices in the course of time.

References

https://www.investopedia.com/ask/answers/013015/how-venture-capital-regulated-government.asp

https://content.next.westlaw.com/Document/Ieb4a24ed1cb511e38578f7ccc38dcbee/View/FullText.html?contextData=(sc.Default)&transitionType=Default&firstPage=true&bhcp=1

Women Venture Capitalists on How Female Founders Can Get Capital

We all know the statistics. Female founders only received 2 percent of the venture funding in 2017, and just 8 percent of partners at the top VC firms are women.
According to a report provided by Pitchbook, the majority of the top firms that put funds in female-founded companies have women in senior-level roles. In recent months, some all-male partnerships have a female partner for the first time in their history. These female partners include Rebecca Kaden at Union Square Ventures, Nimi Katragadda at BoxGroup, and Hayley Barna at First Round Capital.
When asked how female founders can get more capital, here is what two female VCs had to say
Women must make many investment decisions to get funded, according to Patricia Nakache. Making investment decisions is a part of tapping into existing networks. To Patricia, the more success stories that women will have, the more venture capitalists will invest in them.
According to Susan Lyne, the biggest shift will happen when many women-led companies exist as IPOed or unicorns. Stitch Fix is an important IPO because CEO Katrina Lake is one of the few female founders who has taken their company public.
References
http://fortune.com/2018/03/08/venture-capital-female-founders/
http://fortune.com/2018/01/31/female-founders-venture-capital-2017/

Challenges that Female Entrepreneurs Face When Seeking Venture Capital

The women’s role in the workplace has assumed big proportions. According to some economists, economic empowerment of women is one of the most significant revolutions of the past half-century. Women own more than 36% of all businesses and contribute over $3 trillion to the economy.

Despite women being good entrepreneurs, women founders received only 2% of the entire VC funding last year. Although no one finds it easy to get funds, women seem to have more difficulties. The bias between women and men had been very hard to measure until Harvard Business Review team analyzed conversations of venture capital behind closed doors. The team, after analyzing 125 applications, it concluded that male founders are questioned about “future possibilities” of the project they were pitching.

On the other hand, questions are asked questions that center on the associated risks and being cautious with money. These differences in use of language result in a different perception of personas, thus leading to a lower success rate for women founders.

Another challenge that faces women is that venture capital network is men’s clubs. In the VC world, much of the ecosystem is built around networks. The venture capital community is predominantly male. Communities tend to favor their own.

References

https://www.entrepreneur.com/article/309167

https://www.businessnewsdaily.com/5268-women-entrepreneur-challenges.html

What Returns Do Venture Capital Firms Expect?

Venture capital can bring about additional funds that can expand your business greatly. Before looking for a venture capital investor, you should consider the costs related to this kind of funds since the investors anticipate for profits. You must offer better returns to the investors before they choose your company and also surrender part of the possession of your company.

A new venture can have profits or losses. According to the National Bureau of Economic Research, the average return is 25%. A venture capital firm will be interested in making the average return but with higher predictions, which depends on the business capabilities.

Venture capitalists anticipate having very high returns after several years. According to venture capitalist Fred Wilson, one is considered a successful investor after generating 2.5 times his money in 10 years. However, this is considered failure by some venture firms.

Majority of venture capitalists have a portfolio of investments. Since your company is one business among many they fund, that helps during the negotiation of returns. For example, you may give a lower return than other unpredictable businesses if your company is stable. This can be attractive to VCs since they need to diversify among risky and safe investments.

References

https://finance.zacks.com/return-venture-capitalists-expect-10600.html

https://www.forbes.com/sites/tanyaprive/2016/04/28/what-returns-can-i-expect-from-startup-investing/#596337b87964

Best Career Advice from a Woman Who has Worked in Venture Capital for Over Two Decades

It is rare for women to specialize as venture capitalists. And it’s even rarer to find women who have been venture capitalists for over two decades.

Such is the case of 25-year Wende Hutton, a general partner at Canaan Partners, a firm that manages about $5 billion.

Hutton’s career in venture capital began when she joined Mayfield Fund. At Mayfield, she was not only the first women but also the only woman on the team.

Hutton’s career in venture started when she joined Mayfield Fund after working at biotech startups. At Mayfield, she was the first and only woman on the team.

Hutton came from a different background from her male colleagues. Getting them to understand why she, a wife of a CEO and a mother of two young children, wanted to work and balance her life with her job was a challenge.

In an attempt to meet her responsibilities, Hutton attended board meetings with her children on some occasions. Today, one of her sons is a CEO.

If you intend to invest in biotechnology, Hutton has to pieces of advice she learned over her 25-year career. The first: “Don’t work alone.” Especially if it comes to the development of new drugs, it is important to work with experts. The second piece: “Have a very curious nature.” Working with biotech is accompanied by a whole lot of learning.

References

http://www.pulselive.co.ke/bi/strategy/strategy-a-woman-who-s-worked-in-venture-capital-for-25-years-shares-her-best-career-advice-and-why-it-was-worth-being-the-first-and-only-woman-on-her-team-when-she-started-out-id8018742.html

http://women.vc/united-states/wende-hutton

How to Raise Capital for a Mobile App Startup

The startup era is booming nowadays, with 40% of employed people wanting to quit their job and start businesses. One of the most interesting startups to found today is ‘Mobile app’ startup. Unfortunately, investors are not interested in startups at idea stages. It takes a lot of craftsmanship to make a ‘Great Product’ from a ‘Great Idea.’

If you have developed a mobile app, the following are strategies that can help you on the pathway to establishing a successful startup.

1. VCs see feasibility

If you approach investors without prototypes, they might dismiss you. Venture capitalists do not forecast or speculate anything. They get numerous approaches with the working models. VCs knows that many people reach the ‘Idea’ stage,’ but only a few people touch the next stage.

2. Competitive Landscape

There is a very tiny possibility that the same type of mobile app idea is already on the market or is already launched but with a difference. You have to show anything that distinguishes your startup.

3. You must have investment basics

After founding a mobile app startup, you ought to know almost all its terminology. Or else, you will be referred to as a ‘Dumb founder of a rusty startup.’

4. Get a Co-founder

Running a business alone is risky. Co-founders not only share capital and risk but also technical skills. It’s really rare to find one person who possesses all the necessary qualities: management technical, and sales.

References

https://www.entrepreneur.com/article/275930

https://savvyapps.com/blog/10-steps-to-raise-money-for-your-mobile-app-startup