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How does a venture capitalist company originate? Is a large amount of money required to begin a venture capitalist company?

My name is Kevin and I am a sophomore in Boston. I have interest in this profession and I am curious about how to get involved. #investing #venture-capital

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A’s Answer

Hi Kevin!


Venture capital (VC) is a fascinating industry. The origins of VC firms can vary significantly, but most VC capital comes from large institutions such as pension funds, endowments (e.g. universities and hospitals), charitable foundations, insurance companies, family offices (very wealthy families), and corporations. Some VC money also comes from high net worth individuals. However, smaller VC funds are more likely to have individuals as investors rather than large institutions.


Most VC founders have worked at another VC or start-up company before starting their own VC firm. Maybe you can find a summer internship in the field?


Hope this is helpful and good luck!
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Erik’s Answer

Building on A G's answer above, there are a few types of venture firms and it is good to understand their purpose. Over the past twenty years in technology it has become much less expensive to start a company because of things like Amazon Web Services. Before you had to buy a ton of equipment and now you just rent computing. Another example is renting a WeWork desk versus paying rent for a whole office.

The type of venture capital that came about because of this change is seed capital. These tend to be smaller firms that raise much less money to focus on investing in businesses with solid founder-market fit. Many companies don't get their product right so it is important to believe in the founder and the market they are going after since it may take a few iterations before they get it right. Seed funds tend to have just a few employees and focus on the relationship and value add much more than just the money. Seed funds are the people taking the most risk. They tend to get their capital from the same as above (i.e. pensions), but they also take money from larger venture funds that are looking to get into companies earlier than they normally get to participate.

After this comes the more standard venture company as described above.

Erik recommends the following next steps:

You should look up firms like Baseline, Upside, Uncorked and more to see examples.
You should read a book called the Hard things of Hard Things by Ben Horowitz to see the challenges of an entrepreneur and how important it is to have good relationships with investors when building a business.
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Simeon’s Answer

Venture capitalist companies are large firms that control large amounts of money. I don't think it is possible to strike out on your own without being a billionaire. Usually an equity firm invests its money in a wide diversity of companies to reduce risk. Sometimes, however, investment firms will buy enough stock to control the company so that it can take it in a profitable direction before selling off all of its shares. This process is essentially like flipping houses: you buy one in a state of disrepair, fix it up to be nice, and sell it at a much higher price than what you bought it for.
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