Roles & People
Venture Capitalist
A professional investor who deploys capital from a managed fund into high-growth private companies in exchange for equity, targeting outsized financial returns.
Venture capitalists raise capital from limited partners (pension funds, endowments, family offices), pool it into a fund, and invest in startups and growth-stage companies. Returns come from equity appreciation — buying early-stage equity low and selling through IPOs or acquisitions.
The VC business model: 2% annual management fee on committed capital covers operations; 20% carried interest on profits above the hurdle rate is the real upside. This incentive structure means VCs need massive outcomes — 10x+ fund returns — from a small number of companies in their portfolio.
In Practice
Mike Moritz at Sequoia invested $12.5M in Google in 1999 for roughly 10% of the company. That investment returned billions when Google IPO'd in 2004 — a single deal that returned many times Sequoia's entire fund. This power law dynamic defines how venture capital works.
Why It Matters
Founders should understand that VCs need big exits to return their funds — they're optimizing for massive outcomes, not sustainable modest businesses. This aligns well with founders swinging for the fences, and poorly with those building toward a stable, profitable smaller exit.