Key Elements of Venture Capital

There are two key elements within a VC fund: general and limited partner.

The General Partners

- These are the people in charge of making investment decisions (finding and agreeing to
terms with startups and companies) and working with startups to grow and meet their
goals
- General partners make the investments

The Limited Partners

- These are the people and organizations who provide the capital necessary to complete
those investments
- Limited partners provide the funds

The Key Players of Venture Capital

The venture capital industry has four main players: entrepreneurs who need funding;
investors who want high returns; investment bankers who need companies to sell; and the
venture capitalists who make money for themselves by making a market for the other three

1. The Venture Capitalist

- VCs manage the day to day activities of the venture capital firm, and are responsible for
identifying and executing on potential investment deals. They receive hundreds of
business pitches every year, and usually invest in just a handful of entrepreneurs.

2. The Entrepreneur
- The entrepreneur is the most important player in venture capital. Without Facebook’s
Mark Zuckerberg, Google’s Sergei Brin and Larry Page, and Microsoft’s Bill Gates,
these companies would not exist. And, venture funds wouldn’t have entrepreneurs to
invest in.

3. Limited Partners (LPs)

- Where general partners invest in startups, limited partners invest in venture capital funds.
- The six most common examples of limited partners are: fund of funds; large
corporations; wealthy individuals; pension funds; insurance companies; and educational
endowments.
4. Lawyers
- Lawyers play various roles in venture capital.
- Lawyers assist entrepreneurs incorporate their businesses, patent their IP, and with any
other legalities involved in starting a company. More and more law firms are starting to
catch on to the idea of helping startups at their earliest stages
- The second way lawyers play a role in venture capital is by representing entrepreneurs in
negotiations with VCs. There can be tricky terms on a term sheet, or points of contention
where lawyers can help.
- Finally, they can play important roles in helping VCs raise money. Lawyers can help ease
the process in dealing with potential limited partners.