A Complete Guide to Venture Capital 101

Venture Capital (VC) is a kind of funding given to a startup company in exchange for equity in the business. A startup in this context refers to a relatively new company on a growth trajectory and in need of capital to sustain the growth. A good example is when an investment company offers $100,000 to a startup to steer the growth in exchange for 10% ownership of the company.

Types of Venture Capital Funding

Venture capital investments are classified based on their applications at different stages of a business. So, there is early-stage financing, expansion-stage financing, and buyout/acquisition financing. Additionally, VC funding is completed in six stages namely seed money, start-up, first-round, second-round, third-round, and fourth-round.

VC Fields of Activity

Venture CapitalVenture capital is driving the massive growth in various industries across the globe with Israeli startups bagging 20% of the global VC investments. The software industry has gathered the highest investment at 36.2% followed by Biotechnology at 17.3%, Media and Entertainment at 9.5%, Medical Devices and Equipment 7.1%, and IT Services at 6%.

Previous Successes

Thanks to the Fourth Industrial Revolution, software companies have benefitted massively from venture capital. Phone-based apps are among the most valuable startups across the globe with the majority of them using VC to spearhead global expansion.

Portfolio Companies in VC

CB Insights in collaboration with the New York Times has created an algorithm-driven insight into the world’s leading VCs at individual firm levels. According to the latest report, the top portfolio companies in VC include:

  • Accel
  • Sequoia Capital
  • Kleiner Perkins Caufield & Byers
  • Benchmark
  • Greylock Partners

How Long Does a VC Funding Last?

Venture capital funds are typically non-liquid, meaning that they don’t have any redemption rights and are offered within a limited lifecycle of between 7 and 15 years. After the post-commitment period, the funds are dissolved and any remaining investments are liquidated by the fund’s manager with proceeds distributed among the investors based on the terms of the distribution waterfall.

Venture capital investments involve high risks but offer attractive returns, so you should do thorough research of the project under consideration before making a commitment.

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