#09 - How the Venture Capital Fund Cycle Works? - VC Trademill & VC Jobs

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• ✒️ Deep Dive: How the Venture Capital Fund Cycle Works? - VC Trademill.

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VENTURE CAPITAL FUND CYCLE & VC TRADEMILL

"Let's understand the whole process of building a VC Fund and how the VC fundraising cycle works.

General Partners (GPs) spend 2-2.5 years securing funds from Limited Partners (LPs), including HNIs and Family Offices. Even for smaller amounts, the duration remains the same.

It involves The Two-Stage Fundraising Process:

The VC fund cycle involves two stages - the first close and the final close. In the first 1-1.5 years, GPs aim for 40-50% of the total targeted funds. The remaining capital is raised in the subsequent 1-1.5 years, leading to the final close.

But what after the first raise (40%-50% of decided raised capital) - Does VC start to invest in startups / start to charge Management fees OR wait to raise the rest of the money and then start the investment? :bulb:

Generally, after First Raised, VCs start to invest in the startups over the commitment period which is about 3-5 years. In the Commitment period - VCs will do investment in 10-15 new startups (depending on investment strategy).

Simultaneously, VCs begin charging management fees over the fund's lifespan. These management fees usually amount to around 1.5%-2% annually.

“But till the first raised - the VC business worked kind of a bootstrapped startup.” :male-construction-worker:

The commitment fund is designated for investing in new startups. but, once the commitment period end, VCs no longer able to make new investments. Instead, they shift their focus to follow-on investments, which typically occur around two years after the commitment period. :man-gesturing-ok:

The follow-on investment phase extends from the initial fundraising to approximately 7-8 years into the fund's lifespan. During this period, follow-on investments are made in the startups that were previously invested during the commitment period.

Typically, VC funds are organized into Fund I or Fund II. Fund I is formed by combining the capital raised during the first and final raises.

However, once the commitment period concludes, VCs are unable to invest in new startups. To avoid being unable to invest in fresh startups, VCs initiate the process of raising funds from Limited Partners (LPs) for Fund II.

Fund II fundraising usually begins before the end of the 1-1.5-year commitment period.

This cycle of raising funds and deploying them into startups forms what is known as the VC Treadmill, where VCs continuously seek new funds to sustain their ability to invest and support startups.

VC Treadmill:

Raised Fund → Deployed in startups → Raised Fund → Deployed in startups

The primary responsibility of raising funds from LPs in the VC business primarily falls on GPs or MDs. It is the GPs and MDs who handle investment decision-making, fund operational activities, fundraising efforts for new funds, providing support to portfolio startups, and presenting the fund's performance to LPs.

Individuals working in the VC industry can envision the extensive workload involved in these tasks, which encompass a wide range of responsibilities to ensure the success and growth of the fund.

That’s it. I hope you are able to understand the lifecycle of a VC fund and the most common terms used in VC Fundraising.

Venture Capital Jobs & Internship

• MBA Summer Associate - Emerson Collective | USA - Apply Here

• Associate  - Leran | USA - Apply Here

• Associate - NextGen Venture Partner | USA - Apply Here

• Senior Investment Associate, India - B Capital | India - Apply Here

• Senior Associate, Blue Ivy & Nassau Street - Alumni Venture | Apply Here

• GP - Outside VC | USA - Apply Here

• Associate / Senior Associate - Millennium Technology | USA - Apply Here

• Investor Relations Manager - Frontline | UK - Apply Here

• Investment Associate -Neo | USA - Apply Here

•  Associate - Frontline | UK - Apply Here

• Intern - France | France - Apply Here

• Investor Relations Manager - Cusp Capital - Apply Here

• VC Intern - Muse Captial | US - Apply Here

• Marketing Manager - Struck Capital - USA - Apply Here

• Senior Associate -B Capital | India - Apply Here

• Principal / Growth Manager - Real Tech Holdings | Singapore - Apply Here

• Intern- Investor Relations - Krystal Venture Studio| India - Apply Here

• VC Intern -Riverwalk Holding | India - Apply Here

• Financial Analyst - Sentiem | UK - Apply Here

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