2-How-VC-works-A-Beginner-s-Guide-Simplanatio #

Venture capital is the investments of private capital in private companies, ie, companies not listed on the stock exchange. They are ready to invest in a VC fund because of the high returns expected from it compared to other options they have (public equity markets, debt, real estate, etc).

• The first 2-3 years, Bala’s effort goes into identifying and investing in startups
• The next 3-4 years go into building them
• The last 2-3 years is when Bala tries to ’exit’ the investments and make money

Bala can also show that he’ll include

• Clauses for voting rights on key decisions like selling the company or when to IPO
• Anti-dilution clauses - if the startup raises the next round of funding at a lower valuation, the # of shares owned by the fund will be adjusted so that the fund continues to own the same % of the startup as before the round

When you go through the list of portfolio companies on a VC’s website, remember that they could be investments from different funds, each of which have different goals :)

VC is f**king tough #

With high risk comes high returns. #2%20How%20VC%20works%20-%20A%20Beginner’s%20Guide%20-%20Simplanatio%20ff137c29a3d94403953d5ffc4f56a4a7/https3A2F2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com2Fpublic2Fimages2F774e5abf-3310-42af-9df1-aaba66f69057_1920x1080.jpeg Continuing Bala’s example… Bala ended up raising $10M and invested that money in 25 companies. To generate a 25% annualized return, Bala’s fund has to at least 10x its original size, ie, the sum total of all the investments has to be at $100M (10x over 10 years = 25% year-on-year growth) Now, this would have been simple if all the 25 startups grew 10x in those 4-5 years after Bala invested.