DOING BUSINESS WITH VC´S – VC FIRM STRUCTURE & VC ORGANIZATIONS

 

How do VC firms obtain their funds for investments, and how they are organized? And, if you partner up with a VC, can that influence your business ? A VC firm that show interest in your business plans or business results is naturally a fantastic option. However, not all great investors makes great board members and finding the right investor with the right connections and experiences can make a huge positive impact on the success possibilities of your company (excellent book resources from VC insiders that can be highly recommended for further information are included at the bottom of the post):

  • Are you and your company in the VC firm sweet spot?
  • Are you and the VC are aligned with respect to the goals of the business?
  • Smart-Money? Can the VC firm contribute to your business besides providing funding?
  • How experienced are they? With a history of successful transactions and investments?
  • How could bringing the VC onto the owner side change the dynamics of the Company/board?
  • What are the timelines for investment of the VC? Do they have possibilities for participating in later-stage funding rounds?
  • How are they to work with? Are there good chemistry between you, the management team and the VC firm?

VC FIRM STRUCTURE

It can help you to understand who ultimately makes decisions within a venture capital firm and what that potentially can mean for you as an entrepreneur and your company. Most venture capital funds are organized as limited private partnerships with a fixed life ~10 years. Other investors (pension funds for instance) are the limited partners investing in the VC fund. The management company, which is the general partner, is responsible for making and managing the investments and in return typically receives a fixed fee+share of the profit. Thus, a VC firm also needs to raise money and have investors/bosses wanting a return on their capital invested. A typical VC firm are run by Managing Directors/General Partners with Directors or Principals, Associates and Analysts.

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KEEP YOURSELF UPDATED

Although with no particular focus on the biotech sector (and prime focus US), the Moneytree Report by Pricewaterhouse Cooper, the Venture Capital Dispatch from the Wall Street Journal and the Deal Book from the NYT provides excellent insights into the start-ups, statistics and latest trends in venture capital investing:

 

VC Firm Structure.jpeg

Managing Directors or General Partners: At the top are the managing directors or general partners. They make the final investment decisions and will sit on the board of the companies in which they invest.

Directors or Principals: Often with significant deal experience and responsibility and can take board seats. They will, however, require the pull of the managing directors or General Partner to get a deal all the way to funding.

Associates: Normally involved in sourcing deals, due diligence, or writing reports.

Analysts: Below the associates are the analysts while at some firms, analysts take on some of the responsibility of associates.

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SOME GOOD BOOKS ABOUT VC FIRMS AND VC DEALS

MASTERING THE VC GAME
By McBussgang, Jeffrey
Excellent and personal information from a VC professional about VC firms and how they operate, how to pitch etc. The author is a General Partner at Flybridge Capital Partners.

VENTURE DEALS

By Feld & Mendelson
Highly recommended book with a thorough covering of VC term sheet parameters including economic, legal and control terms of today´s VC deals. Also excellent covering of how VC firms raise and make money.

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