SUB CATEGORIES OF Funding Your Startup

Venture capital firms make their investments through funds formed as Delaware limited partnerships or Cayman Islands exempted limited partnerships. On occasion, venture capital funds are formed as other types of entities, such as Delaware limited liability companies.

The investors in venture capital funds are called “limited partners” or “LPs” and are typically institutional investors, such as pension funds, insurance companies, endowments, foundations, family offices, and high net worth individuals. The person that makes investment and other decisions for the fund is called a “General Partner” or “GP” and the members of the GP are the fund managers. The GP is usually an entity formed as a Delaware limited liability company.

The typical term of a venture capital fund is 10 years, so investors which invest in venture funds do so with a long-term view and do not need immediate liquidity of the funds they invest. As a practical matter, most VC investments takes years to mature and the bulk of the returns are near the end of the life of the fund or beyond.

According to NVCA statistics, there were 462 active US venture capital firms in 2010, defined as investing at least $5 million in companies. Each of these firms might have more than one venture fund, and large firms, such as NEA, likely have more than 20 funds. In 2010, the average venture fund had committed capital of $149 million.