VCs

Venture capitalists, or VCs, are investors who provide capital to early-stage and growth-oriented companies with high growth potential in exchange for equity. They operate individually or as part of venture capital firms, and they aim to generate outsized returns to compensate for the high risk of startup investing. VCs often focus on sectors such as technology, life sciences, and software, and typically value intangible assets like teams and product-market fit alongside financial metrics.

Venture capital is usually pooled from institutional and high-net-worth investors who become limited partners in a fund. General partners manage the fund, source deals, perform due diligence, negotiate terms, and ultimately decide which companies receive investment. Funds have a finite life, commonly around 10 years, with possible extensions. Typical stages include seed, early (Series A/B), and growth rounds. In exchange for capital, VCs take equity and may receive additional rights such as board seats and protective provisions. Management fees (often around 2%) cover operations, while carried interest (commonly around 20%) provides a performance-based share of profits.

Investment process involves deal sourcing, initial screening, due diligence, term sheet negotiation, and closing. Investments are usually structured as preferred equity with provisions like liquidation preference, anti-dilution protection, and veto rights on major corporate actions. Exits occur through acquisitions or public offerings, enabling the return of capital and profits to limited partners.

Impact and criticisms: VCs play a central role in funding startups and driving innovation, but the ecosystem can be concentrated geographically and across a small number of incumbents. Critics point to potential conflicts of interest, limited access for underrepresented founders, and the pressure to achieve rapid exits at high valuations.