How VC and Private Equity Funds Work

An Important Lesson That Both Startups and Investors Should All Know

What is Venture Capital?

How does venture capital funds and private equity work?

How does venture capital funds and private equity work?

What I'd like to do is give you a little bit of insight into venture capital funds and private equity structures and how they work. Here is an overview of the fund structure itself and this was adapted by private equity, NYU Law Review article.  You have a general partner in the top left. This general partner is connected to a bunch of investment professionals, not unlike myself. I'm a general partner at Angel Kings and our goal is to set up the most acute, most intelligent venture capital funds that invest in amazing startups or early stage companies as well as some late stage companies who are private equity.

Our responsibility for the Private Equity Fund, L.P. is to distribute the LPs funds intelligently within all of those portfolio companies.

 Once we've got our general partner in the top left, then you get a fund that's connected to it. That could be private equity fund LP, LP standing for limited partner and up to the top right, as you see there's what's called limited partners. Limited Partners at Angel Kings are those investors, it could be institutional investors, it could be individual, wealthy or credit investors who can invest a minimum amount which could be between a hundred thousand all the way up to twenty million dollars, even more. Then those limited partners will invest in the particular fund that we've established at Angel Kings, that's the private equity fund LP. Our goal, our fiduciary duty for that private equity fund LP is to distribute their funds intelligently, acutely within all of those portfolio companies that we've invested in.

What is the role of general partners when it comes to investing?

What is the role of general partners when it comes to investing?

The idea here is there's an interconnected web of both the general partnership which is connected to a private equity fund that we established, sometimes what's called special purpose vehicles, meaning they're separate case by case funds that we establish where we might raise money for that particular fund. Other times we have, they're investing in a general, wider variety. In this particular case, this is more of a diversified fund where we can allocate capital towards a variety or myriad of portfolio companies.

Once this is established, you got your GP or your general partner in the top left established with the private equity fund or that particular LP fund, limited partnership. You've got your LP's that are connected to that who inject capital in there and then we distribute money into the portfolio companies. If you look in the top left there you'll see a thing called carried interest and management fees. That's how the general partner of the fund itself makes money. The carried interest. When you establish a venture capital fund and you've got the similar structure of private equity fund, they're really interchangeable for the most part. There's carried interest, there's management fees that the general partners get but the limited partners actually have more upside. Typically upside for a limited partner is 80%, sometimes higher depending on the fund we establish at Angel Kings.

 If you have any questions, I know that was a lot of material but the goal was to get the basics out of the way, please don't hesitate to reach out to us. We love working with investors and educating both startups and new investors in our funds. 

What are the differences between VC funds and PE funds?