How venture capital funds make money: why one big win pays for all the startups that fail
Venture capital: whose money a startup investor really puts in
An investor offers your young startup millions of dollars. This is venture capital. But most of that money is not the investor's own. So whose is it?
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Your app finds someone near you to walk your dog, and it needs money to grow. Miva, an investor, offers $2 million for a fifth of your startup.
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You think the money is hers. It is not: Miva runs a fund, $100 million gathered to put into young companies like yours. This kind of money, for startups that may grow huge or fail, is venture capital.
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So whose money is it? Rono invests the savings of the city's bus drivers, the money they will live on when they retire, and he puts $40 million of it in the fund. A university, a foundation and a few rich families add the rest.
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Rono and the others are the limited partners. They put money in, then wait: they have no say in which startups get it. Miva is the general partner: she picks the startups and runs the fund.
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And the deal has a date. The fund lasts about ten years, and by then Rono expects the bus drivers' money back, with much more on top. The $2 million Miva offers you is a small part of that promise.
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Go further
Three more words around the fund.