what is VC funds ?
A VC (Venture Capital) fund is a pool of money collected from multiple investors, which is then used to invest in startups and small businesses that have high growth potential.
lets seen throw example:
Imagine you’re part of a group of 10 friends, and you all want to invest in new juice shops started by young entrepreneurs in your city.
1: Pooling Money Together
Each of you contributes ₹1 lakh. Now, you have a fund of ₹10 lakhs.
You appoint your most business-savvy friend, Rohan, as the fund manager. His job is to find promising juice startups to invest in.
- This is just like a VC fund manager collecting money from investors and making investment decisions.
2: Finding Startups
Rohan finds 5 juice startups:
One has a unique sugar-free recipe.
One uses exotic fruits.
One is eco-friendly.
One delivers juices online.
One is run by college students with viral marketing.
He invests ₹2 lakhs in each.
VC funds diversify investments across multiple startups to reduce risk.
3: Waiting for Growth
Over 3–5 years, these juice startups grow. One becomes very popular and gets acquired by a large beverage company. Your ₹2 lakh investment turns into ₹20 lakhs. The others either do okay or fail.
- This is how VCs make profits – one big success can cover all the failures and still bring high returns.
4: Sharing Profits
The fund now has ₹25 lakhs (₹20L from the successful startup + ₹5L from the others). Rohan takes a small percentage as a fee, and the rest is shared among all investors.
- VC fund managers earn a management fee (e.g., 2%) and a performance fee (called “carry”, usually 20% of profits).
Summary:
VC Fund = Group of investors pooling money to invest in startups.
Fund Manager = Person who finds and manages startup investments.
High Risk, High Reward: Most startups fail, but a few big winners give high returns.
Timeframe: Usually 5–10 years before profits are realized.
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