Venture Capital Fund Platform: Dynamics and Structure

“Structure follows strategy”

Just as a company has a business process and a defined organizational structure, a VC fund is no exception. Such is the case of a16z (Andreesen Horowitz) agnostic fund that manages USD$16.6bn that invests in disruptive technologies such as Fintech, Crypto, Consumer, Enterprise, among others.

Managing a fund is just as complex as managing a business. The main activities in the administration of a fund are the following:

- Capital formation: Capital is the lifeblood of any fund; without it the fund would have no life. Before starting to operate the fund, managers must go through the arduous work of raising capital from their LPs. To make it a reality, managers need to create a network of relationships with potential investors and show their expertise through previous experience and track record. This activity is developed by the founders of the funds. In funds of significant size there is a specific position that carries out these efforts. As part of this effort, the fund manager commits own resources to align the incentives with the LPs.

- Investor relations: Maintaining the relationship with investors is essential since the objective of the funds is to raise multiple funds over time. In order to achieve this, the investor relations position is created. The responsibilities of this position include the centralization of the fund’s information and establishes deep ties with investors. In addition, it is in charge of organizing events for LPs and providing tailored information.

Origination of opportunities: It is the essential activity of the fund whose objective is to generate relevant investment opportunities for your investment. Building a business network and positioning a brand are essential in achieving vehicle success. That is why administrators are tasked with creating a wide network of contacts and actively participating in the ecosystem in such a way that this allows them a robust pipeline generation. For example, a fund like a16z is formed by 22 investment professionals which interacts with thousands of companies along the year.

- Analysis and structuring: Once the funds have detected the investment opportunities, they carry out a selection process to determine which are the best opportunities in which to invest. In the initial phase, it socializes with the startup trying to understand the business model, traction and growth potential. Subsequently, the due diligence process is carried out where the operation of the company, the fundamentals, the financial, legal and fiscal aspects are reviewed in depth. If this analysis is positive, the process proceeds to the negotiation of the terms and conditions of the transaction where the legal documents for its agreement and execution. Finally, the legal process of closing the transaction is carried out, where the corresponding contracts are signed, and the investment is made.

-Portfolio management: This activity is the responsible for generating value within the portfolio companies through strategic advice on the thesis and business model, support in the appropriate escalation, search for talent for the team of the startup, business development through strategic introductions, help and advice in raising capital and back office services.

  • Operations: In addition to external activities, VC funds carry out internal administrative tasks to ensure the proper functioning of the fund. Some of the main tasks are:
  • Legal operations: where compliance with internal corporate governance is observed.
  • Accounting: which executes the entire internal financial process including capital inflows and outflows, as well as the periodic valuation of the assets in the portfolio.
  • Fiscal: observing the fulfillment of the obligations of the vehicle in the applicable jurisdiction.
  • Human capital: implements the process of attracting and selecting talent within the vehicle, as well as the compensation and personnel management scheme.

Usually the media tend to focus on the amount of assets under management and investments of fund managers, without taking into account the complexity of their processes. However, a fund structure usually considers a large amount of important small pieces interacting with each other which procures the correct functioning of the vehicle.

“Venture Capital is a dynamic and people-driven business”. Steve Jurvetson (American businessman and venture capitalist)

Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.

Ricardo Latournerie. VC Investor at ACV.

ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.

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