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Inside Venture Capital Funds: Commitments, Investments, and Life Cycle
Venture capitalists are professional fund managers that utilize external funds rather than their own capital. They carefully assess, invest in, and monitor new entrepreneurial ventures on behalf of investors like pension funds, banks, and insurance companies. Just like in other businesses, VCs act as representatives for the people who invest in their funds.
The main role of VCs is to act as middlemen in finance, using their expertise to find and evaluate entrepreneurial ventures that regular investors would have a hard time dealing with on their own. Their specialized knowledge allows them to invest in projects that other investors in the fund might overlook. VCs also get actively involved with these ventures and sometimes even join their board of directors. This helps balance the information gap between the investors and the entrepreneurs, making sure that the entrepreneurs act in the best interests of the investors once they get funding from the VC’s fund.
There are pros and cons to VC firms handling other people’s money. On the positive side, the partners in a VC firm are more willing to take investment risks with external funds compared to using their personal savings for things like mortgages or retirement. However, this situation also brings challenges. The risks that a VC firm takes are…
