Part 1: How Does A Venture Capital Fund Work
Updated: Mar 6, 2022
Looking into venture capital funding is a great step in starting your own business. It is also a great investment method that can be applied in businesses of various sizes. But before you start investing or looking for an investor, it's important to learn what venture capital is and how it works.
In this episode of Her CEO Journey, our guest is Vonetta Young, a proud woman of colour and financial advisor. She will guide us into the world of venture capital funding and how it works. We will also discuss the difference between private equity and venture capital, business partnerships, and other ways to fund your startup.
If you are interested in becoming a venture capitalist or in learning how to look for the perfect business partner, read on!
Here are three reasons why you should continue reading:
Learn about venture capital funding and its importance to business founders.
Know how to look for the best business partner and how to find people who will positively impact your business.
Gain deeper insight into the banker ecosystem.
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Venture Capital Resources:
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Get financially ready at Vonetta Young Advisors
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Connect with Vonetta Young: LinkedIn
[5:59] Vonetta Young’s Journey
Vonetta started her career in communications and media relations. However, she eventually got disinterested in her copy editing job.
She became interested in institutional asset allocation when she came across the topic in something she was editing.
She eventually left her job and pursued her master’s degree in finance.
Vonetta took her experience as a writer and institutional limited partner to help prepare women and people of colour to form their first fund.
"There's not a lot of women in the industry, not a lot of people of colour in the industry. And so I, as a black woman, in any room that I was in, I was kind of changing the world just by virtue of being in the room or sitting at that particular table."
[9:03] The Difference Between Private Equity and Venture Capital
Private equity is an entity investing in a business that is already well established.
Venture capital funds are an investment towards a start-up where a company is young.
"If you're going to become a venture capitalist, you've decided to basically make it your job to invest in start-ups."
There's minimal debt to no debt involved in venture capital because it invests in start-up.
Private equity may need to use debt financing to acquire an established company.
[10:30] How to Create A Venture Capital Fund
Becoming a venture capitalist means that you've made it your job to invest in start-ups.
You may have to ask institutions for funds to invest.
Track records are a significant factor in whether investors choose to provide you with finances.
"So track record is going to be a really big, I would argue that it's going to be the biggest issue."
Angel investments are investments you have made yourself using your money. They help build your track record.
[12:17] How does An Angel Investment Help
To become a venture capitalist, you must go out and convince people that your angel investment has done something.
Deciding on your team is also a big step. Are you choosing a general partner or a limited partner?
"And if you're going to do it with a partner, does your partner also have a track record? Is there a way for you to start doing deals with your partner sooner than later? So you can find out what that dynamic is?"
[13:20] Deciding on Partnerships - General Partner vs. Limited Partner
There are pros and cons to having a partner in your business.
A lot of institutional investors are uncomfortable with investing in a solo general partner because of security.
“Don't let desperation for money get in the way of making a good partnership decision. And think about what you need in a partner. At the stage that you're at if your idea of a good partner is, now I need someone who is going to introduce me to certain reach.”
Make sure that your partner has a track record and a network in the industry your start-up is focusing on.
After deciding on your investment partner, think about what are the other team members that you might need.
"So your question to the venture capitalist is, how are you going to help me expand my sales? Are there other customer bases that I need to be targeting? What am I not thinking about that you can shed some light on?"
Venture capitalists have to report where they’re investing to the people who.
[16:22] Determine The Level of Investment and Partnership
It is a personal decision to choose what level of investment you want to make.
These business decisions can also factor into how much capital you need to raise to make these investments.
The higher the level, the higher amount of capital needed.
While thinking about partnering with a venture capitalist, you have to be aware of your needs at your current stage.
The Investment Partnership is so much more than the money; it is a marriage.
[25:21] On Newer Fund Managers
There are numerous advantages and disadvantages to working with a new fund manager.
One advantage is that they'll be hungry to prove themselves. The downside is their lack of experience.
Vonetta vouches for new fund managers because of the freshness and access to different communities and customer bases.
[28:37] Where to Find New Emerging Fund Managers
There are Google venture capitalists where you can find lists on website media.
You can check your local Business Journals such as Washington Business Journal, Baltimore Business Journal, and Charlotte Business Journal.
Twitter is also a great place to find venture capitalists.
Powerful Quotes On Becoming Venture Capitalists
"Sometimes I think it comes down not necessarily to a business decision, but to a personal decision of, 'Where do they feel that that they can make the biggest impact?'"
“In thinking about partnering with a venture capitalist, you do have to be very aware of your needs at the stage that you're at.”
"I think the newer fund managers bring a certain air of freshness. They probably have access to different communities and different sorts of customer bases. And I say this because a lot of newer fund managers tend to be women and people of colour."
“I think the value in working with an emerging manager, particularly someone who is a woman or a person of colour, is that you're going to get advice, you're going to get guidance that people probably historically have not gotten.”
Vonetta Young is a proud woman of colour who works and manages as a Chief Strategy Officer in her business advisory firm, Vonetta Young Advisors. She provides business and finance consulting to emerging firms. Vonetta finished her undergraduate bachelor's degree in English and Psychology in 2007 at Georgetown University.
After working in the communications field in Media Relations and copy editing, Vonetta took up her master's degree and finished her postgraduate degree in finance in 2013 at the Georgetown University McDonough School of Business.
Vonetta had a long journey as to where she is now, advising people of colour and women in forming their first institutional-quality private equity or venture capital fund. She is also an author and freelance writer for personal essays, memoirs, and fiction surrounding the discourse of race and class in the life of people of colour. Vonetta currently resides in Washington, District of Columbia, United States.
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