What is a venture capital fund?
Short Answer
A venture capital fund pools money from limited partners (LPs) to invest in early-stage, high-growth companies in exchange for equity, typically targeting 3-5x returns over a 7-10 year fund life.
Full Explanation
A venture capital fund is a pooled investment vehicle structured as a limited partnership. The general partner (GP) manages the fund and makes investment decisions, while limited partners (LPs) — typically institutional investors, pension funds, endowments, and high-net-worth individuals — provide the capital. VC funds typically invest in companies from seed stage through Series B/C, taking minority equity stakes. The fund has a defined life (usually 10 years with possible extensions) divided into an investment period (years 1-5) and a harvest period (years 6-10). Returns are generated through exits — IPOs, trade sales, or secondary sales — with the GP typically taking 20% of profits (carried interest) above a hurdle rate, plus a 2% annual management fee. For portfolio companies, understanding intangible asset value is critical because VC-backed companies are overwhelmingly intangible-asset-intensive: their value lies in technology, team, and market position rather than physical assets.
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