How do VCs Raise Funds for themselves?

The world of finance and economics might be tricky and quite hard to follow and understand. Finance, especially when it comes to business finance and investment, is a tough ball with piles of money that go back and forth in the industry. The entire industry of finance and investment is very organized, and unlike other industries, it is also very volatile. 

For a new startup, it is important for someone to understand how they would function in the industry and raise funds in a competitive market where people are scrutinizing funding and monetizing small businesses. 

In a dynamic business scenario such as in 2022 with an ongoing economic crisis, understanding where to look for funds and when to look for funds is essential. Given the right platform and opportunity, a startup with potential can skyrocket within the first few years of its inception and prove fruitful to its investors. 

VCs and Startups

Venture Capitalists and Startups have a unifying bond that is unlike anything else. Venture Capitalists are a board of investors or exist as a forum always looking for the right startups and businessmen to invest in. They are forever scanning the market for potential businesses, small or medium, in which they can partner and therefore launch the business in a way that it can make profits sooner than later.

Venture Capitalists, like the name suggests, are capitalists. They are forever looking for a means to invest in new and upcoming businesses for a percentage of stake in their equity (Equity Financing) and returns from their profit. 

In exchange, they may provide investment, knowledge sharing, and business experience and may also put their reputation on the line. Either way, it can be noted that the relationship, however risky it may seem, is vital to both the Venture Capitalist and the startup regarding fundraising

Raising Funds as a Venture Capitalist

Although Venture Capitalists seem at the top of the world with plenty of money, they may not be potentially investing their own money. 

Many VC forums and firms may be thriving on wealthier investors, companies, family trusts and funds of large incorporations and convincing them to become investors in smaller startups for exciting returns. These investors would in turn become LPs or Limited Partners in the startup and may start monetizing their investment once the company grows and flourishes. 

As a Venture Capitalist, the firm or the person may have to fulfill certain criteria to raise funds for itself. This includes:

  • Record of investment that they have made in the past

As a VC, one must have a good record of investment that stands as a testimony for other investors to invest in the VCs business in good faith.

  • Building good capital through self-investment

Having a solid foundation, to begin with, is important as this helps better funding when LPs and other VCs want to invest.

  • Approaching LPs

LPs are the primary people to approach for VCs.

  • Approaching firms that do fundraising for non-profits

There are private firms that can help VCs in finding funds through various mediums.

  • Offering IOC – Initial Coin Offering

Initial coin offering is a new remarkable way for VCs to gain funding.

  • Crowdfunding

Many new VCs are making use of Crowdfunding instead of equity financing as a reliable way of investment for themselves.


Celine Greenholt