All Money Is Not Created Equal

Chapter 8The Ins and Outs of Venture Capital

If you are already familiar with how venture capital, venture capitalists, and venture capital funds work, feel free to skip this chapter. On the other hand, if the specifics are still somewhat murky to you, this chapter – done largely in a question-and-answer format – should give you enough knowledge to feel informed and confident when talking to a VC and making decisions.

There are numerous books and online resources around venture capital. The information here is not intended to be a substitute for a deep dive into the subject or for performing your own due diligence on specific VCs or venture capital firms.

How is venture capital different from angel money?

VC money is institutional money – money that is invested by firms that are full-time, professional investors. Angels are individuals investing their personal capital.

What is the difference between venture capital and private equity?

While venture capital is technically a form of private equity – both VC firms and PE firms invest in nonpublic companies – the goals are different. VC firms take minority stakes in growing companies in which the investment is used to fund losses in support of further growth; private equity is investing with an eye toward either owning the company outright or at least having a majority stake. PE investments are almost always used to facilitate the acquisition of a profitable company.

Where does the money for venture capital come from?

A venture ...