How Are VC Funds Structured?
VC in 33 Seconds
Ever wonder how a venture capital fund is structured? In this quick explainer, we walk you through the simple yet powerful structure behind VC funds — how money is pooled, invested, and returned. Learn what it means to write one check in and receive multiple checks out, and why most returns are classified as capital gains, not income.
VC in 33: How Are VC Funds Structured?
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Curious about how venture capital funds work? In this short video, we explain the basic structure of a VC fund — how capital is raised, deployed, and eventually returned to investors. Discover what it means to invest once and benefit from multiple returns, and why these returns are typically treated as capital gains rather than income.
💡 Ideal for first-time investors in venture capital
🏦 Clear explanation of fund flow and management
📈 Understand how your returns are generated
🔍 Insight from Alumni Ventures’ investor education series
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Michael Collins
CEO, Alumni VenturesMike has been involved in almost every facet of venturing, from angel investing to venture capital, new business and product launches, and innovation consulting. He is the CEO of Alumni Ventures and launched AV’s first alumni fund, Green D Ventures, where he oversaw the portfolio as Managing Partner and is now Managing Partner Emeritus. Mike is a serial entrepreneur who has started multiple companies, including Kid Galaxy, Big Idea Group (partially owned by WPP), and RDM. He began his career at VC firm TA Associates. He holds an undergraduate degree in Engineering Science from Dartmouth and an MBA from Harvard Business School.
Frequently Asked Questions
FAQ
You can find the full transcript below:
Michael Collins:
So venture capital firms are really structured pretty simply. A pool of people will assemble money. So all the money will kind of flow into one entity. And that entity will be managed by a venture capital firm, which will make the investment decisions, do the legal documents, monitor the portfolio, provide K1’s to the investors, and then harvest investments and return that money back to the individual investors. Typically that structure is one check in, multiple checks out, and it’s usually within the realm of capital gains as opposed to income.
This communication is from Alumni Ventures, a for-profit venture capital company that is not affiliated with or endorsed by any school. It is not personalized advice, and AV only provides advice to its client funds. This communication is neither an offer to sell, nor a solicitation of an offer to purchase, any security. Such offers are made only pursuant to the formal offering documents for the fund(s) concerned, and describe significant risks and other material information that should be carefully considered before investing. For additional information, please see here. Example portfolio companies are provided for illustrative purposes only and are not necessarily indicative of any AV fund or the outcomes experienced by any investor. Example portfolio companies shown are not available to future investors, except potentially in the case of follow-on investments. Venture capital investing involves substantial risk, including risk of loss of all capital invested. This communication includes forward-looking statements, generally consisting of any statement pertaining to any issue other than historical fact, including without limitation predictions, financial projections, the anticipated results of the execution of any plan or strategy, the expectation or belief of the speaker, or other events or circumstances to exist in the future. Forward-looking statements are not representations of actual fact, depend on certain assumptions that may not be realized, and are not guaranteed to occur. Any forward-looking statements included in this communication speak only as of the date of the communication. AV and its affiliates disclaim any obligation to update, amend, or alter such forward-looking statements, whether due to subsequent events, new information, or otherwise.