Funds and returns

Venture capital funds themselves raise money from institutional investors like pension funds, foundations, university endowments, insurance companies and others. In 2014, according to the BVCA’s annual research, UK venture capital funds raised since 2002 have returned 6.4% on a since-inception basis to investors as it continues its upward swing – an extremely positive development considering the majority of these funds are still in their formative years and have yet to sell many of their equity stakes.

The money raised from the institutional investors is put into a fund structured as a limited partnership and which is managed by the venture capital fund manager – known as a ‘General Partner’ or GP – and the money is used to invest in companies. GPs also invest their own money into the funds they manage. This is to ensure they have ‘skin in the game’, i.e. their interests are aligned with that of their LPs.

Private equity funds typically have a fixed life-span of 10 years and by the end of the 10 years they will have had to return the investors’ original money, plus any additional returns made. This generally requires the investments to be sold, or to be in the form of quoted shares, before the end of the fund.