A venture capital (VC) fund is a sum of money investors commit for investment in early-stage companies.
The investors who supply the fund with money are designated as limited partners. The person who manages the fund is called the general partner.
The general partner decides which early-stage companies the fund will invest in based on criteria established by the fund partners. These typically include:
- Growth and liquidity benchmarks
- Strategic measures such as market position and the distinctness of a company’s products or services
- The strength and alignment of the company’s management team
Most VC funds typically have an active investment period of five years. After that time, they enter into a “support period” of another five years, during which the general partner can choose to invest capital earned to date by the fund’s investments if they have performed well. If the limited partners agree, this second five-year period can be extended for two or more years.
At the end of a VC fund’s life, the profits are divided among the limited partners. The general partner earns a fee and gets a share of the net profits.
More about venture capital funds
Venture capital funds are typically distinguished by industry sector and segment. For example, BDC Capital’s sector specific funds focus on:
- Industrial, clean and energy technologies—energy management solutions, smart grid technologies or new, high-performance materials among others
- Healthcare technologies—such as therapeutics, medical and diagnostic technologies, and technology-enabled services
- Information technologies—such as enterprise software as a service (SaaS), big data analytics, e-commerce and mobile platforms