Social media, ChatGTP and cultured meat: we live in times of unprecedented innovation. The silent engine behind all these developments is venture capital. These funds provide capital to start-ups developing innovative technology. With this growth capital, good ideas grow into mature companies that make handsome returns in fast-growing markets.
Venture funds operate by raising money from investors, such as governments, pension funds and wealthy families, and using it to set up funds. Each fund then invests in a basket of startups. The end goal? Getting back a multiple of the investment when the company is sold. Funds achieve this by maturing the companies and selling them to a PE investor, another existing strategic company or, in some exceptional cases, preparing them for an IPO.
The venture landscape is wide and deep. From the big funds such as Sequoia and Accel, that invest hundreds of millions in companies like Uber and Facebook to build big monopolies, to university funds that transfer a few thousand euros to a few smart students with a clever idea - there is a fund for every level. Venture funds also tend to specialise in a particular sector, such as biotech or software.
Often, a company goes through several rounds of venture capital as it grows. The names vary (pre-seed, Series A, Series B) but you can assume that as the letters or numbers get higher the amounts increase and the company keeps growing. Some funds specialise in the 'early stage' phase in particular, whereas others step in just before the IPO. In venture capital, you will actually often see multiple funds participating in a single startup to spread the risk.
What venture capital funds also do is support the management or founders of the company. The founders of innovative companies are often techies or scientists who, while very good at inventing new things, are not always that good at the operational aspect of the business. The funds help find management and work with formal and informal mentors - often former entrepreneurs themselves - to coach the founders.
Venture capital is very different from traditional investing, given the experimental nature of the investments. VC investors take into account that most of their investments will break even and some will not make it, but a few big outliers in their portfolios will yield more than enough to make up for the rest. And that works. Because of these outlier returns and the overall growth of the tech market, venture capital has been the most profitable investment category over the past 20 years.
Over the past decades, venture capital has shown handsome returns. However, it was never possible to participate as a private investor. But Marktlink came up with a solution: Marktlink Capital. As an investment category, venture capital is akin to private equity. The difference between private equity and venture capital is explained here.
