How VC Works – A Beginner's Guide
simplanations.substack.com
How VC Works – A Beginner's Guide
1–10 of 33 posts
Re: How VC Works – A Beginner's Guide
#2This is great. I'd love to see more on how the basic VC model, described admirably here, contributes to the weird dynamics of the startup ecosystem.
E.g. if the fund size is large enough, VC partners can do very well ($ millions a year) purely from the fee. So they are incentivised to close large funds, and for that they need to demonstrate potential, which is easiest to achieve through huge valuations on paper for their portfolio rather than actual exits.
Like, I'd love to see some relatively impartial analysis of stuff like that, because mostly the only people who talk about it are ranting.
Re: How VC Works – A Beginner's Guide
#3Naive question: does this same paradigm apply to angel investing?
Re: How VC Works – A Beginner's Guide
#4This is great. I'd love to see more on how the basic VC model, described admirably here, contributes to the weird dynamics of the startup ecosystem. E.g. if the fund size is large enough, VC partners can do very well ($ millions a year) purely from the fee. So they are incentivised to close large funds, and for that they need to demonstrate potential , which is easiest to achieve through huge valuations on paper for…
Hey, thanks! I am the author of this.
I am certainly thinking of writing about such dynamics. Also want to cover how lead investor dynamic plays out which leads to due diligence being passed on/skipped and other signalling stuff. Still struggling with the structuring of the piece though
Re: How VC Works – A Beginner's Guide
#5Naive question: does this same paradigm apply to angel investing?
Not really. A major difference is an Angel invests his own money, not someone else's like a VC does. So the incentives are different. The angel also sources deals differently and invests only in very early-stage companies (mostly at idea stage), so the risk-return picture is even more skewed.
Re: How VC Works – A Beginner's Guide
#6I hate it when blogs do this. Does it hurt to put the full word in the title (or at least first paragraph) instead of the initials? It took me a relatively long time to understand what the article is about when I was reading it.
I don't know about you, but Venture Capital is not the first term I think of when I hear VC.
Re: How VC Works – A Beginner's Guide
#7I hate it when blogs do this. Does it hurt to put the full word in the title (or at least first paragraph) instead of the initials? It took me a relatively long time to understand what the article is about when I was reading it. I don't know about you, but Venture Capital is not the first term I think of when I hear VC.
Hey, I am the author of this.
Fair point - I should've been more thoughtful. Will keep in mind :)
Do let me know if you found it useful otherwise.
Re: How VC Works – A Beginner's Guide
#8Nice explanation. The LP and GP parts feel a little wonky though
>they don't run the VC firm (hence the term 'limited').
It’s from the concept of limited legal liability more than who runs it.
Same for GP - generally just a legal shell. practically it doesn’t really do the stuff the article implies. The actual running of it is usually in a third entity (again to separate legal liability). And the carry sometimes goes to a fourth.
Re: How VC Works – A Beginner's Guide
#9I hate it when blogs do this. Does it hurt to put the full word in the title (or at least first paragraph) instead of the initials? It took me a relatively long time to understand what the article is about when I was reading it. I don't know about you, but Venture Capital is not the first term I think of when I hear VC.
Your comment is like walking into a computer shop and getting angry when the store asks you what PC you want. The article even mentions venture capital at the top of the article BEFORE the first paragraph - no reason to get angry from your lack of knowledge.
Re: How VC Works – A Beginner's Guide
#10Quote: "Being a VC is fing hard".
But what he won't tell you is much much harder to be a founder/engineer who actually does stuff.
It's not clear how different this is from say hedge fund? I would imagine it's the same set of people who just found a nice, easy alternative?