Venture Capital 101: Structure, Returns, Exit and Beyond

Pocket Sun
SoGal
Published in
6 min readJun 30, 2015

--

This post will tell you all the basics you need to know about venture capital. If you have questions, feel free to email me at hello@sogalventures.com.

This is the fourth post of study notes from the Insider’s Guide to Silicon Valley Investing program with Stanford University and 500 Startups. This part was taught by Mike Lyons and Pedram Mokrian. This is one of the longer posts.

What Is Venture Capital?

Venture capital is equity financing, where an investment partner sits along side the entrepreneur and assists in strategically MANAGING RISK associated with building high potential, fast growth and capital efficient companies.

Venture capital is NOT:

- Rich people spreading money in outlandish and risky ideas

- Corporations seeking out ideas to steal and build on their own

- Highly structured financial transactions

- Debt or buyout equity capital with majority ownership

Bottom line: You shouldn’t structure your way to returns (because you can’t).

Three Types of Venture Capitalists

A good venture capitalist is a thoughtful, experienced ally, who sits along side the entrepreneur as a partner and a mentor, knowing full well that their fate is intertwined. Most venture capitalists fall into the following three types — domain expert, operator or networker. A domain expert is someone who’s deep into a certain field and knows everything going on in this industry. An operator, or a growth expert, is someone who has a track record of growing and scaling a company. A networker is someone who can make important intros to domain experts, operators, or your next investor.

The Venture Fund Structure

The image on the left is the structure of a private equity fund, but the idea is the same.

Venture Fund is the main investment vehicle used for venture investing. Each is structured as a limited…

--

--

Pocket Sun
SoGal
Editor for

@pocketysun: Co-founder and Managing Partner @SoGalVentures. Forbes Under 30 featured honoree.