What a VC fund is
A VC fund is a pooled investment vehicle. A venture capital firm, acting as the fund's general partner, raises committed capital from a number of limited partners, typically pension funds, insurance companies, university endowments, family offices and wealthy individuals, then invests that pooled money into a portfolio of early-stage and growth-stage private companies on their behalf.
That structure is the main thing to understand. The people deciding whether to back your company are professional fund managers investing other people's money, not their own, and they report back to their limited partners on how the fund performs. Most VC funds are closed-end vehicles with a fixed life, so a fund manager has to invest, grow and eventually exit the whole portfolio within a set window rather than holding positions indefinitely.
Funds usually set out a specific mandate before they start raising from limited partners, for example a focus on a particular stage or sector, and investment decisions inside that mandate typically go through a deal committee rather than resting with one person.
How a VC fund differs from an angel investor
- A VC fund invests capital raised from limited partners. An angel investor invests their own money.
- Fund decisions usually go through a formal deal committee. An angel can decide alone.
- VC funds generally write larger cheques and invest across a wider range of stages, from seed through growth. Angels invest mostly at pre-seed and seed.
- A fund has an ongoing structure and a fixed life to invest and return money to its limited partners. An angel has no equivalent structure or timeline behind their decisions.
How a VC fund differs from a VCT
The names get confused constantly, but a VC fund and a VCT sit on opposite ends of who can put money in.
- A VC fund is a private limited partnership. A VCT is a public company listed on the London Stock Exchange.
- Only the fund's own limited partners can invest in a VC fund. Anyone can buy shares in a VCT through a stockbroker.
- A VC fund invests directly into individual funding rounds on behalf of its limited partners. A VCT wraps a similar kind of investing inside a listed structure built for retail investors.
The three types of VC fund
- Stage-focused funds. Invest at one part of a company's life, for example only at seed or only in later growth rounds.
- Sector-focused funds. Invest only within a specific sector, such as fintech or healthtech, backed by deep expertise in that space.
- Generalist funds. Invest across multiple stages or sectors rather than specialising in one.
