How a VC Fund Structure Looks Like?
“The secret to successful hiring is this: look for the people who want to change the world.” –Marc Benioff, Salesforce CEO
There are approx. 1,300 Venture Capital funds in the United States. In recent years, the development of new business models has increased the need for capital injection, and this has raised the opportunity for new investment funds to emerge. Venture Capital has become an exciting career for investment bankers, consultants, engineers, developers, creatives and serial entrepreneurs, among many others.
A key element in VC funds is the human talent that is integrated into an organizational structure. Assets under fund management determine the size of the organization and the specialty in the roles. Megafunds (more than USD$1,000mm in AUM) will have a wide structure that covers all areas of opportunity. The main roles that emerging and growing VC funds need to have can be divided as:
1. Leadership team
It is composed by the founders, who take the lead in the strategic definition of the fund. They are members of the executive committee and the investment committee. Also, the different partners of the Partnership are included within this group.
- CEO / Managing Partner: In addition to the investment responsibilities, this person usually performs administrative functions; including, financial, legal, fiscal, human capital, investor relations, relationship with government and civil authorities, etc.
- General Partner: Focuses primarily on the investment process and brand positioning of the vehicle. Usually has a seat on the board of directors of portfolio companies.
- Partner: It is a junior partner that focuses fully on the investment process, usually leading an industrial sector or geography. Additionally, takes part of the board of directors of invested companies. Other responsibilities are to review, negotiate and sign the legal documentation linked to every investment.
2. Investment team
In addition to the management team, the funds have investment professionals who support these tasks. Some positions may be:
- Senior Principal / Principal: Leads transactions from origin, to due diligence, to administrative closing of the investment. Also monitors portfolio performance and supports portfolio companies.
- Senior Associates / Associates: Dedicates time in market research, supports origination, analysis, and investment process.
- Intern Associates: It is a special consideration in some funds, in which practitioners (usually MBA candidates) are hired for a period of 6 to 12 months where they gain exposure to Venture Capital.
- Venture Partner: They are professionals, usually external to the fund, who provide access to investment opportunities through their business network, offer their technical or operational knowledge and support in fund’s fundraising activities.
- Entrepreneur in residence: Usually an entrepreneur who, for a defined period, provides advice and contacts to portfolio companies. In addition, she also supports the fund in assessing investment opportunities.
3. Operating team
Part of the team dedicated to add value to portfolio companies or develop management activities of the fund itself.
A. Business specialist:
Team dedicated to supporting the portfolio companies, whose objective is to generate value. Usually the profile of professionals are consultants, previous entrepreneurs or investment bankers. Their activities include:
- Capital formation: Support entrepreneurs in the capital raising processes and financial monitoring.
- Value creation, strategic partnerships & operations: Provide business intelligence by transforming data into actionable goals that can create impact. In addition, build scalable programs and processes to accelerate the success of the companiess. They provide access to business networks seeking the accelerated growth of the company.
- Talent acquisition: Provide advice to entrepreneurs in team strategy and executive talent pursuit. They also promote equity, diversity and inclusion.
- Additional activities:
- Product design focused on consumers and global businesses.
- Marketing and Communication for content creation and visual assets.
- User experience validation, focused on product market fit and growth.
B. Technical Specialists:
It is dedicated to improve and create the technological base of the portfolio. Activities include:
- Analysis of data and problems using Machine Learning, predictive algorithms, and data visualization.
- Development of infrastructure and security systems, storage, and monitoring.
- Source and structure of data.
C. Fund Operations (managerial team):
Every fund requires internal administrative areas to develop its activities, the main areas are:
- Finance: Manages financial and accounting control of the fund’s operations. Some positions are CFO, manager or analyst, and comptroller.
- Legal: They are responsible for the legal structuring of the vehicle and the compliance of the corporate government. Some positions are General Counsel, Legal Counsel and Corporate Paralegal.
- HR: The main activity is to support in the structuring of the fund by hiring the best talent, training it, and retaining it. There is usually a human resources manager and a leadership and talent manager.
- Investor Relations: They are responsible for establishing, developing and maintaining the relationship with investors. There is usually a director in this area and one or more supporting analysts.
- Marketing and communication: They have the objective of increasing the recognition of the experience and record track of the fund. They focus on brand awareness and strategic alliances. There is usually a director in this area and one or more supporting analysts.
- IT: They are responsible for providing technological services to the fund’s operations.
- Assistants: Each fund has one or multiple executive assistants who support with multiple administrative tasks.
External agents who provide consulting to fund managers or portfolio companies.
All previously mentioned roles receive a compensation for their work. They usually take a salary and a bonus that is paid from the fund’s management fee. Fund partners also receive a carry if the fund is successful.
Venture Capital’s fund structure will depend on its assets under management. In the United States funds manage on average USD$300mm, they usually have a simplified structure that includes:
- Investments: An average of three GPs and three associates
- A value creation & strategy specialist for portfolio companies
- Operations: A director of finance, a person in legal, and a head of talent, diversity, and communications.
- Sometimes there is a director of investor relations and a comptroller.
- Additional roles may include some Venture Partners and several Advisory Board members.
The structure of a Venture Capital fund is extremely relevant, it’s all based on the talent of its people. Venture Capital funds are in sum a service company with diverse teams focused in bringing the best value to each company they invest.
Hector Shibata Salazar, adjunct Professor at EGADE Business School and Director of Investments and Portfolio at AC Ventures Fund
Ana Maury Aguilar, VC Investor at AC Ventures
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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