How to Invest in Venture Capital

Following up on our ‘Why Invest in Venture Capital” article, where we discuss the many benefits of becoming an LP in a venture capital fund, we will break down and outline the steps for this complex process of becoming a limited partner.

Investing in a venture capital fund is a daunting task that takes careful consideration. Choosing the right fund and sector of focus is the first step. We recommend that you narrow down your list by considering your areas of expertise. Many experienced limited partners adopt this strategy as it increases your decision-making ability when choosing the correct fund. Consequently, you can add value to funds you are an LP in as well as their portfolio companies. This post-investment ‘value add’ will increase the likelihood of the fund’s portfolio companies becoming market leaders and consequently improve the returns of the fund. 

Focusing on domains where you are an expert will also allow you to expertly diligence the fund managers you are considering. You will be able to analyze their deal warehouse, judge their track record much better, and further understand the fund manager’s thesis and its potential.

It is provident to familiarize yourself with key terms and conditions in limited partnership agreements, as this document sets forth the parameters of the relationship in the partnership. You should also understand the mechanics of venture capital and gain a grasp of the exit scenarios and levels of return to expect. Other things to consider are the capital commitments you make to the fund and how they work.

Click here to read VC Lab’s 6 step process which simplifies this arduous task.

Check out more of VC Lab’s content below: 

• Venture Capital Roles

• The Basics of VC Funds

• The Venture Industry Explained

• Venture Capital Fund Mechanics

• How to Build a Venture Team