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A fund of venture capital funds is a group of private investors that put their money into accounts that help small to mid size businesses. These small to mid sized businesses are typically start-up business, but some may be expanding. The fund of venture capital funds creates a situation that may be mutually beneficial for both the investors that are putting money into the funds and the businesses that are using the funds to start or expand their business.
Venture capitalists are the individual investors that put their money into the fund of venture capital funds. Venture capitalists are looking for ways to invest their money for a short-term period. In this instance, a short-term time period is typically less than five years. During the short-term period that the investors have their money in the fund of venture capital funds, they are looking for significant returns on their investment—typically in the double digits. A fund of venture capital funds is a group of venture capitalists that come together to create the largest fund possible for the business or businesses that will become the recipient or recipients of this investment money.
Small to mid size businesses that need money to start its operations use the fund of venture capital funds to pay the start up expenses required to get the business or businesses off the ground. Some businesses use a fund of venture capital funds because the owners or founders of the business are not able to obtain a traditional business bank loan. Other businesses do not have any other sources of money to start the business, so they turn to venture capitalists that have the money to invest and who believe in the business idea enough that they will reap a big rate of return on their money in a relatively amount of time.
Other businesses have other sources of funds to start or even expand the business. When these businesses are short some of the money they need, they may turn to a fund of venture capital funds for the rest of the money they need to get their business off the ground or to expand the business.
In the end, the businesses that use the fund of venture capital funds obtain the money they need to launch their business idea. The venture capitalist benefit by getting back their original investment amount plus a percentage of the profits of the business that is typically predetermined when the investor agrees to invest in the fund.
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