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Venture capital (VC) is a type of private equity investing that involves investment in earlier-stage businesses with high growth potential (startups) and require capital. In return, the investor will receive an equity stake in the business in the form of shares.
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Everyone in the start-up world talks about venture capital like it’s some mystical force, startup’s stairway to heaven. But the truth is simpler: venture capital is a system. Understand how it works, and you can navigate it on your own terms instead of feeling like you’re playing someone else’s game.
A VC fund isn’t a bag of free money waiting to fuel innovation. It’s a structured business that invests other people’s money, limited partners (LPs), with the goal of generating strong returns over a set period, usually ten years.
Here’s the unvarnished version: most funds expect only a handful of their portfolio companies to drive nearly all of their returns. If a fund is worth S$150 million, they’re hoping one or two investments grow big enough to pay for everything else. That’s the economic engine behind the model, a few big wins power the rest.
This explains the VC obsession with scale and timing. They’re not just investing in what works; they’re investing in what can work fast enough to move the needle within their fund cycle.
The VC model isn’t something to fear or worship. It’s a framework. Once you understand the incentives behind it, you can approach it with confidence, not deference.
For deep-tech founders, that understanding is power. You’ll know how to align your milestones with a fund’s expectations, communicate progress in a way investors value, and secure capital that complements your vision rather than reshaping it.
At the end of the day, venture capital isn’t the destination, it’s fuel for getting where you were already headed. The trick is learning to drive it, not letting it drive you.
For those looking for something extra:
https://hbr.org/1998/11/how-venture-capital-works
https://www.investopedia.com/terms/v/venturecapital.asp
https://govclab.com/2023/08/09/vc-models-focused-dispersed-and-hybrid-2/