Venture Capital Lesson
#1
Introduction to Venture Capital
Venture Capital – A form of private equity financing
provided to startups and early-stage companies with
high growth potential.
CHARACTERISTICS OF VENTURE CAPITAL
KEY PLAYERS IN THE VENTURE CAPITAL ECOSYSTEM
Limited Partners (LPs): Investors in venture capital funds
General Partners (GPs): Managers of venture capital
funds.
Portfolio Companies: Startups and businesses receiving
funding.
Support Ecosystem: Accelerators, incubators, and
service providers (e.g., legal, financial)
RISKS IN VENTURE CAPITAL
VENTURE CAPITAL VS. OTHER FINANCING OPTIONS
Aspect
Venture
Capital
Bank
Loans
Angel
Investmen
t
Boot-
stripping
Source
Professiona
l investors
or VC firms
Banks or
financial
institution
s
High-net-
worth
individuals
Personal
savings or
revenues
Stage of
Business
Early-stage
or growth-
stage start-
ups
Any stage,
typically
requiring
collateral
Early-stage
startups
Any stage,
mostly
startup
phase
Risk
Appetite
High risk,
high reward
Low risk,
requires
credit-
worthiness
High risk,
based on
personal
judgement
No
external
risk
involved
Re-
payment
Obligatio
n
No
repayment,
investors
take equity
ownership
Fixed
repayment
with
interest
No
repayment,
but takes
equity
Not
applicable,
as its
self-
financed
Control &
Owner-
ship
Ownership
diluted; VCs
may take
active
control
No owner-
ship loss
Ownership
diluted; less
active
control
Full
ownership
retained
Involve-
ment
Active
involve-
ment;
strategic &
mentorship
Minimal
involve-
ment
Moderate
involve-
ment, may
offer
mentorship
Full
indepen-
dence
Access to
Capital
Large
amounts for
scaling &
growth
Limited to
credit-
worthiness
&
collateral
Smaller
amounts
compared to
VC.
Limited to
personal
or
company
resources
Focus
Areaas
Innovation,
high-
growth
industries
Traditional
businesses
with stable
revenue
Innovative
ideas or
businesses
Varies,
depends
on the
entrep-
reneur
Approval
Time
Lengthy due
diligence
process
Can be
quicker if
collateral
& credit
are strong
Relatively
fast, based
on personal
evaluation
Immediat
e
COMPANIES FUNDED BY VENTURE CAPITAL
1. Google
➢ Google, founded in 1998 by Larry Page and Sergey
Brin, received its first major venture capital funding
in 1999. The funding came from Kleiner Perkins and
Sequoia Capital, two prominent VC firms, which
jointly invested $25 million.
➢ This early investment helped Google scale its
infrastructure, develop its search engine
technology, and establish its dominance in the
market. The support from VC firms also provided
valuable mentorship and networking
opportunities.
2. Facebook
➢ Facebook, founded by Mark Zuckerberg in 2004,
received its first VC funding in 2005 from Accel
Partners, which invested $12.7 million. Additional
investments came from Greylock Partners and
Peter Thiel.
➢ These funds enabled Facebook to expand its
operations, hire top talent, and enhance its
platform. The VCs played a crucial role in guiding
Facebook through its growth phase, eventually
leading to its IPO in 2012.
3. Airbnb
➢ Airbnb, founded in 2008 by Brian Chesky, Nathan
Blecharczyk, and Joe Gebbia, initially struggled to
gain traction. However, in 2009, it secured a
$600,000 seed investment from Sequoia Capital.
Equity
investment,
not loans.
High risk,
high reward.
Active
involvement
by investors.
High failure
rate of
startups.
Market volatility
& economic
downturns.
Regulatory
and ethical
concerns.
