Close to 50% of all deals lose money, 20% make 1-2x the initial investment, 15% make 2-5x deals, and 10% make 5-10x. Just 6% make more than 10x - according to a study conducted by Horsley Bridge, a private equity firm - reiterating the value of 'risk' in gaining a significant return.
The framework and philosophy of risk-taking have attracted a significant percentage of young talent to the industry. Known as a type of Private Equity with a return horizon of 5-10 years, VC offers its investors exit through an IPO, Merger, or acquisition.
In this 6-part analysis of a Venture Capital career, MBA Curriculum, and post-MBA roles in the industry, we cover:
• Types of Venture Capital
• Venture Capital Career – Skills
• Top MBA Programs with VC Focus (MBA Curriculum Course List)
• Top MBA Programs with VC Focus (In-Depth Curriculum Analysis)
• Post-MBA Placements in Venture Capital - Top 12 Business Schools
• Post-MBA Roles and Career Opportunities in Venture capital
Types of Venture Capital
For start-ups with little or no operating history and no access to capital markets, Venture Capital (VC) is a significant and crucial source of investment. VC firms often seek out new and small businesses with the potential for long-term growth and a high return on investment. Traditional financing institutions and banks, by the nature of their evaluation framework, hesitate to risk the capital on unproven business models or teams, whereas VCs, by their differentiating philosophy, operate on the rule of home runs.
VC funds can be broadly categorized into five types of funds.
1. Seed Capital
For a company that is just getting started and doesn't yet have a product or a well-organized business, seed capital is the first flush of funds that assist in validating its business model and finding product-market fit. Although Angel Investors, Family, and Friends are the primary participants in raising seed capital, specialist venture capital firms branded as early-stage VC firms could also play a defining role in this round. For this round, the median capital raised is around $1 million, with a median pre-seed valuation of $6 million.
2. Startup Capital
When the company has a working product and at least one large customer that contributes towards a predictable cash flow, it scales up by raising startup capital. The name of each round starts with Series.
Series A and Series B rounds fall under Startup Capital.
With Series A, the company is seeking to expand its presence to new geographies and customize its product/service offering accordingly.
A typical fund raised during Series A falls within the $10-$12 million range, and the valuation of the company is set at $20-30 million.
During Series B, the goal is to establish the organizational hierarchy. A significant portion of the funds raised is spent on talent acquisition. Since the scaling is around 200-500 new talent in this round, the capital raised falls around $30 million. At this stage, companies are valued at around $30-$50 million.
Partners from big names in the Venture capital industry – Accel, Andreessen Horowitz, Benchmark, Index Ventures, Sequoia Capital, Bessemer Venture Partners, Founders Fund, GGV Capital, and IVP are often present in this round. Investors from Series A also take part in the round to further support the company’s expansion goals.
3. Early-Stage Capital
At this stage, the company is an established entity with a management team and strong revenue growth.
Series C fund falls under Early-Stage Capital. This is the round when the startup is recognized as a global brand with a significant interest shown by Venture Capital firms, Investment Banks, PE firms, and even hedge funds. The relationship to take the company to an IPO or a Merger begins at this stage.
Close to $70 million is the median valuation during this round (pre-money).
4. Expansion Capital
As the firm is well-established, this round is more of a search for a strategic partner and expertise to take the company to the next level.
Series D funds fall under expansion capital.
Strategic acquisitions begin at this stage to dominate the market. Significant investment is also made in branding and marketing to further capture the mind space of the customers. Due to the amount raised ($50 million), investors with a history of taking the company to exit typically show interest in the round. At the end of the round, the company is valued in the $110-$130 million range.
5. Late-Stage Capital
At this stage, the company has generated impressive sales and revenue with fundraising chosen as a strategic goal (marketing) to boost the prospect of the company among public investors (IPO). A significant amount of the fund is invested in marketing.
The fund raised during this stage is around $250-$500 million, with a valuation that can range on a broad ($1 to $10 Billion) scale.
You are reading the 1st part of the Venture Capital Career Series
• Read the Second part of the Series - Venture Capital Career – 4 Skills that you need
• Read the Third part of the Series -Top MBA Programs with VC Focus (MBA Curriculum Course List)
• Read the Fourth part of the Series -Top MBA Programs with VC Focus (In-Depth Curriculum Analysis) (F1GMAT Premium)
• Read the Sixth part of the Series -Post-MBA Roles and Career Opportunities in Venture capital
