San Francisco-based Carta, a firm that helps private and public companies, investors, and employees manage equity and ownership, notes that VC investors have underwritten “massive transformations in technology, society and culture.”
However, there have been certain changes to the actual investment process, Carta explains. Although the overall structure of a VC company has “stood the test of time,” the process of establishing a venture capital fund has not, Carta claims.
According to the firm, the outdated process of setting up VC funds has been an entry barrier for “new voices” in venture. Carta claims that today, they’re “changing” that.
Going on to comment on why VC funds actually work, Carta notes that back in 1959, the first VC-focused limited partnership was established by a Major General, a US Ambassador, and the chair of RAND and the Ford Foundation. Carta added in a blog post that Draper, Gaither, & Anderson (DG&A) “repurposed the limited partnership structure used by wealthy East Coast families for a new objective: to invest in burgeoning new technology in the West.”
“Today, the basic fund structure that DG&A utilized is the gold standard in venture capital. It has endured for good reason. The structure provides managers with stable income so they can build a career and it aligns incentives between GPs and LPs over the long term.”
As noted by Carta, the venture fund structure has allowed pension funds, sovereign wealth funds, and family offices to provide capital into the “most speculative projects.” VCs with bold visions of the future can establish a career for themselves by strategically investing in those initiatives so they can hopefully turn into reality.
Carta further notes that “ultimately, the venture capital fund structure has backed the Cambrian explosion in technology we have seen over the past 60 years.”
Carta pointed out in its extensive blog post that “despite the spectacular pedigree of its founders, DG&A did not deliver spectacular returns.” However, by “pioneering” the VC fund structure the firm made “lasting contributions to the venture industry.”
According to Carta:
“In the end, what matters most in VC is not where you come from, but where you are going to take the world. Venture capital funds are the perfect medium for investors with unique perspectives to stake their careers on a vision of the future. Whatever your vision is, Carta can help you to make it a reality, one fund at a time.”
As covered, of the six UK companies to achieve unicorn status in 2019, five were backed by venture capital. Despite the global pandemic, equity investors continue to find smaller private UK companies highly attractive.
Judith Hartley, CEO of British Patient Capital, which distributed feedback on the recently-published British Business Bank Small Business Finance Markets Report, has noted that in venture capital, the returns don’t come from the average deal but from a few exceptions.
“Notwithstanding this, it would be wrong to think that venture capital is all about unicorn creation. While unicorns are an important indicator of success, they are not the sole objective of a fund. Many exceptionally high-impact and successful companies never achieve unicorn status but are nonetheless of high value within a venture capital investor’s overall portfolio,” said Hartley. “Dragons’ can be just as important as unicorns and that’s why “Dragon chasing’ remains a priority for many venture capitalists. A dragon is a single company in a venture capital fund portfolio that will, on exit, deliver a return at least equal to the value of the fund. These companies are equally as rare and as valuable as unicorns.”
As reported last month, the total value of venture capital secured by UK-based firms surged to the highest level in Q4 2020 according to estimates from Refinitiv Deals Intelligence.
UK firms secured £2.4 billion in capital from 137 different deals during the last three months of 2020, which is up significantly from the £1.3 billion acquired in Q3 2020 from 146 deals. This level of activity represents an 83% increase in value but also a 6% decline in volume year-over-year (YoY).
As covered in February, Fintech, digital commerce, healthtech in Saudi Arabia are expected to attract substantial VC funding in 2021, local sources revealed.