Venture Capital 101
Venture capital firms raise capital from investors and use these funds to invest in young, high-growth companies, typically in industries like technology and healthcare. These firms provide the necessary capital to start-ups and small businesses that are believed to have long term growth potential but are too new or risky for more traditional forms of investment. In exchange for their investment, venture capital firms usually receive equity in the company. This allows them to significantly benefit if the start-up becomes successful and increases in value. Additionally, venture capitalists often provide strategic guidance and mentorship to the businesses they invest in. The goal of a venture capital firm is to exit their investments after a few years (once the start-up has grown substantially) via a sale or IPO, generating a significant return.
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Largest Venture Capital Firms in the United States
Top 100 VC Firms
| Rank | VC Firm | Location | AUM ($ Billions) |
|---|
| 1 | SEQUOIA CAPITAL OPERATIONS | Menlo Park, CA | $53.3B |
| 2 | ANDREESSEN HOROWITZ | Menlo Park, CA | $53.2B |
| 3 | ENCAP INVESTMENTS | Houston, TX | $32.1B |
| 4 | LIGHTSPEED VENTURE PARTNERS | Menlo Park, CA | $30.3B |
| 5 | ACCEL MANAGEMENT | Palo Alto, CA | $27.2B |
| 6 | New ENTERPRISE ASSOCIATES | Chevy Chase, MD | $25.9B |
| 7 | GENERAL CATALYST | Cambridge, MA | $25.1B |
| 8 | FOUNDERS FUND | San Francisco, CA | $22.1B |
| 9 | INDEX VENTURES SA | Geneva, | $20.2B |
| 10 | BESSEMER VENTURE PARTNERS | Larchmont, NY | $19.7B |
| 11 | ALTIMETER CAPITAL MANAGEMENT | Boston, MA | $16.2B |
| 12 | ANGELLIST ADVISORS | San Francisco, CA | $15.8B |
| 13 | IMPRESA MANAGEMENT | Boston, MA | $14.6B |
| 14 | THRIVE CAPITAL | New York, NY | $14.4B |
| 15 | FLAGSHIP PIONEERING | Cambridge, MA | $14.1B |
| 16 | KHOSLA VENTURES | Menlo Park, CA | $13.7B |
| 17 | KLEINER PERKINS | Menlo Park, CA | $13B |
| 18 | BANYAN CAPITAL PARTNERS | George Town, Grand Cayman, | $12.3B |
| 19 | RIBBIT CAPITAL | Palo Alto, CA | $11.9B |
| 20 | ARCH VENTURE PARTNERS | Chicago, IL | $11.4B |
| 21 | GREENOAKS CAPITAL | Orinda, CA | $11B |
| 22 | Y COMBINATOR | Mountain View, CA | $10.9B |
| 23 | SPARK CAPITAL | Boston, MA | $10.8B |
| 24 | IDG CAPITAL FUND MANAGEMENT | Hong Kong, | $10.8B |
| 25 | BAIN CAPITAL VENTURES | Boston, MA | $9.9B |
| 26 | MATRIX PARTNERS CHINA MANAGEMENT | Singapore, | $9.7B |
| 27 | GGV CAPITAL | Menlo Park, CA | $9.7B |
| 28 | RA CAPITAL MANAGEMENT | Boston, MA | $9.5B |
| 29 | SAPPHIRE VENTURES | Austin, TX | $8.7B |
| 30 | ACCEL PARTNERS MANAGEMENT | London, | $8.4B |
| 31 | ACCEL LONDON MANAGEMENT LIMITED | St Peter Port, | $8.4B |
| 32 | Oak HCFT MANAGEMENT | Stamford, CT | $8.4B |
| 33 | FTV CAPITAL | San Francisco, CA | $8.1B |
| 34 | EIGHT PARTNERS VC | Austin, TX | $7.8B |
| 35 | GREYLOCK PARTNERS | Burlington, MA | $7.2B |
| 36 | ZEEV VENTURES | Palo Alto, CA | $7.2B |
| 37 | ALTOS VENTURES MANAGEMENT | Burlingame, CA | $6.9B |
| 38 | CRV | Palo Alto, CA | $6.8B |
| 39 | BOND | San Francisco, CA | $6.8B |
| 40 | INDIGO PARTNERS | Phoenix, AZ | $6.4B |
| 41 | TELEGRAPH HILL PARTNERS | San Francisco, CA | $5.9B |
| 42 | REDPOINT VENTURES | Woodside, CA | $5.8B |
| 43 | QIMING VENTURE PARTNERS | Bellevue, WA | $5.7B |
| 44 | MATRIX PARTNERS | Cambridge, MA | $5.7B |
| 45 | GREYCROFT | New York, NY | $5.7B |
| 46 | CRAFT VENTURES MANAGEMENT | San Francisco, CA | $5.7B |
| 47 | KASZEK MANAGEMENT S.A. | Montevideo, | $5.6B |
| 48 | B CAPITAL GROUP | Manhattan Beach, CA | $5.6B |
| 49 | BENCHMARK CAPITAL | Woodside, CA | $5.6B |
| 50 | BALDERTON CAPITAL | London, | $5.5B |
| 51 | HEDOSOPHIA ADVISOR LIMITED | St. Peter Port, | $5.4B |
| 52 | CANAAN PARTNERS | Stamford, CT | $5.3B |
| 53 | LUX CAPITAL MANAGEMENT | New York, NY | $5.2B |
| 54 | ADDITION | New York, NY | $5.2B |
| 55 | MOMENTUM CAPITAL PARTNERS ALPHA ADVISOR LIMITED | Beijing, | $5.1B |
| 56 | DCM | Menlo Park, CA | $5.1B |
| 57 | VALAR VENTURES | New York, NY | $5.1B |
| 58 | GOLDEN SAND RIVER DIGITAL | Grand Cayman, | $5B |
| 59 | VR MANAGEMENT | Palo Alto, CA | $4.8B |
| 60 | FIRSTMARK CAPITAL | New York, NY | $4.8B |
| 61 | COLUMBIA CAPITAL | Alexandria, VA | $4.7B |
| 62 | GOODWATER CAPITAL | Burlingame, CA | $4.6B |
| 63 | POLARIS GROWTH MANAGEMENT | Boston, MA | $4.6B |
| 64 | ELEVATION CAPITAL PARTNERS | Salt Lake City, UT | $4.5B |
| 65 | MENLO VENTURES | Menlo Park, CA | $4.5B |
| 66 | MADRONA VENTURE GROUP | Seattle, WA | $4.4B |
| 67 | IDG VC MANAGEMENT | Hong Kong, | $4.4B |
| 68 | FELICIS VENTURES | Menlo Park, CA | $4.3B |
| 69 | FOUNDRY GROUP | Boulder, CO | $4.3B |
| 70 | MOMENTUM CAPITAL PARTNERS FUND IV ADVISOR LIMITED | Beijing, | $4.3B |
| 71 | MERITECH CAPITAL | Palo Alto, CA | $4.2B |
| 72 | DFJ GROWTH | Menlo Park, CA | $4.1B |
| 73 | NEXUS VENTURES ADVISORS PRIVATE LIMITED | Port Louis, Port Louis, | $4.1B |
| 74 | QIMING GLOBAL MANAGEMENT | Bellevue, WA | $4B |
| 75 | FORERUNNER VENTURES MANAGEMENT | San Francisco, CA | $3.9B |
| 76 | EMERGENCE EQUITY MANAGEMENT | San Francisco, CA | $3.9B |
| 77 | VERSANT VENTURE MANAGEMENT | San Francisco, CA | $3.9B |
| 78 | BREAKTHROUGH ENERGY VENTURES | Boston, MA | $3.8B |
| 79 | MORNINGSIDE VENTURE CAPITAL LIMITED | Hong Kong, | $3.8B |
| 80 | CAFFEINATED CAPITAL MANAGEMENT | , | $3.8B |
| 81 | 5Y CAPITAL MANAGEMENT LIMITED | Hong Kong, | $3.8B |
| 82 | ECLIPSE VENTURES | Palo Alto, CA | $3.8B |
| 83 | UNION SQUARE VENTURES | New York, NY | $3.8B |
| 84 | TRUE VENTURES | Palo Alto, CA | $3.7B |
| 85 | EIGHT ROADS GP | Pembroke, Hamilton, | $3.7B |
| 86 | MAYFIELD FUND L.L.C. A DELAWARE LIMITED LIABILITY | Menlo Park, CA | $3.7B |
| 87 | NEXT LEGACY MANAGEMENT | Palo Alto, CA | $3.7B |
| 88 | ATREIDES MANAGEMENT | Boston, MA | $3.6B |
| 89 | FORESITE CAPITAL | Larkspur, CA | $3.6B |
| 90 | COLUMN GROUP | San Francisco, CA | $3.6B |
| 91 | HIGHLAND EUROPE GENEVA S.A.R.L. | Geneva, | $3.5B |
| 92 | HV CAPITAL MANAGER GMBH | Munich, Bavaria, | $3.5B |
| 93 | FOUNDATION CAPITAL | Palo Alto, CA | $3.5B |
| 94 | INITIALIZED CAPITAL MANAGEMENT | San Francisco, CA | $3.5B |
| 95 | H INVESTMENT MANAGEMENT | Beijing, | $3.4B |
| 96 | MPM ASSET MANAGEMENT | Boston, MA | $3.4B |
| 97 | QED INVESTORS | Alexandria, VA | $3.2B |
| 98 | SIGNALFIRE | San Francisco, CA | $3.2B |
| 99 | YORKTOWN PARTNERS | New York, NY | $3.1B |
| 100 | NORTHERN LIGHT VENTURE CAPITAL | Hong Kong, | $3.1B |
Source: SEC Filings, July 2023
Top 101-200 VC Firms
Limited partners evaluate venture capital firms using various criteria:
1. Track Record: Limited partners examine the firm's past performance, the returns it has generated, and the success of its investment and exit strategies.
2. Team Experience and Expertise: The experience, skills, connections, and reputation of the firm's team are significant. Limited partners look at the team's track record in entrepreneurship, venture capital, and particular industries.
3. Investment Strategy: They scrutinize the firm's investment focus (stage, sector, geography), investment model, deal sourcing strategy, and how the firm creates value in its portfolio companies.
4. Market Reputation: The venture capital firm's reputation among entrepreneurs, co-investors, and others in the venture community can be crucial.
5. Portfolio: Limited partners evaluate the quality of the firm's portfolio, looking at its diversity, health of the companies, their growth potential, and how much the portfolio is concentrated in high-performing companies.
6. Deal Flow: The quality and quantity of deals the VC firm gets access to can indicate the potential of future investments.
7. Governance and Transparency: Limited partners prefer firms with strong corporate governance, clear communication, and transparency in the deal-making and fund management process.
8. Alignment of Interests: Limited partners look for VC firms where the general partners commit a significant amount of personal capital (skin in the game), aligning interests between the limited and general partners.
9. Risk Management: Limited partners assess how the firm manages risk, its approach to portfolio diversification, follow-on investment strategy, and capacity to support companies in difficult times.
10. Fees and Terms: They review the fee structure, carried interest, terms of the fund, and other economic considerations.
These areas together form a comprehensive picture of the potential merits of investing in a particular venture capital firm.
Venture capital firms evaluate potential investments through several stages:
1. Deal Sourcing: Venture capital firms firstly need to identify exciting start-ups or early-stage businesses which align with their investment strategy.
2. Initial Review: Once a potential investment is identified, an initial review is conducted. During this phase, the firm will evaluate the business's concept, the problem it’s solving, size of the market, product-market fit, and the competition.
3. Due Diligence: If the firm decides to progress, it conducts detailed due diligence. This includes evaluating the business's financials, technology, legal status, market and product potential, and more.
4. Team Evaluation: This is a critical aspect for evaluating potential investments. The management team's experience, skills, passion, and vision can be significant factors in the firm's decision-making process.
5. Valuation: VC firms assess the company's value to determine how much equity they will receive for their investment. This process often involves complex financial models and negotiations.
6. Term Sheet and Deal Structuring: Once the valuation is agreed upon, the VC firm presents a term sheet detailing the terms and conditions of the investment. This document outlines the investment amount, equity percentage, voting rights, and exit strategy, among other details.
7. Investment: After negotiations are complete and both parties agree to the terms, the VC firm will go ahead with the investment.
8. Post-Investment Management: After investment, many VC firms take an active role in the company's decision-making process. They may aid in strategic guidance, mentoring, providing industry connections, and preparing for subsequent funding rounds or the exit strategy.
Successful venture capital investing requires a detailed and thorough evaluation process given the high-risk, high-reward nature of investing early in companies with unproven business models.
Venture capital firms evaluate job applicants based on several factors, including:
1. Educational Background: A strong academic background, particularly in fields related to business, finance, economics, or the industry of focus, can be advantageous.
2. Relevant Experience: Experience in investment banking, private equity, strategy consulting, or operational roles within startups / tech companies is highly valued. Prior VC experience, or experience in entrepreneurial roles (founders or early employees), can also be a strong plus.
3. Network: Connections within the industry can be very beneficial in a venture capital role, as well-networked candidates will often have a head-start in sourcing deals.
4. Industry Knowledge: Deep understanding of the industries the VC firm focuses on is key. Firms want to hire people who understand the trends, risks, opportunities, and key players in their target markets.
5. Analytical Skills: Strong analytical skills are important for assessing potential investments. Applicants will often need to show they have the ability to evaluate business models, assess market trends, and understand financials.
6. Interpersonal Skills: Venture capital work involves nurturing relationships with entrepreneurs and co-investors, so strong communication and relationship-building skills are essential.
7. Entrepreneurial Mindset: Having an entrepreneurial mindset is advantageous in the VC world given the nature of startups and the risk involved in these investments.
8. Drive and Resilience: The ability to stay motivated, remain persistent, and bounce back from setbacks is critical in the competitive, high-pressure VC industry.
9. Evaluating Cultural Fit: Venture capital firms often have unique cultures, and they usually seek candidates who are likely to thrive in their particular environment.
An interview process at a venture capital firm would usually involve a mix of behavioral interviews, case studies involving investment evaluation, and potentially a pitch of a potential investment.