venture capital, as an asset Classes are a short-term winning industry. Most funds have a 10-year cycle: two years of initial investment; then two to three years of company building and follow-on investment; after that, five or six years of fumbling and waiting for the boat to come, and maybe a final bet on the fund’s portfolio the most promising companies in the
The model forms part of the VC’s investment thesis; it also includes the sources of potential investment leads (called “sourcing”), and the stage of the investment (pre-seed, seed, series A, etc.), as well as any geographic or vertical or market constraints for the fund . The investment cycle has been pretty consistent throughout the history of venture capital: wait 10 years, and the money invested (hopefully) multiplies.
The upshot of these investment cycles is that venture capital is best suited to invest in the types of companies with hot markets, predictable user and revenue growth, and somewhat obvious outcomes from liquidity events, whether through acquisitions or IPOs. All of these are reasons why subscription-based companies — especially cloud-based subscription software companies — are great candidates for venture capital. A B2B SaaS company that understands the market, knows how to use data to drive growth, and has a clear customer acquisition pipeline is close to being a safe bet for venture capital.
Another “must bet” for venture capitalists is when they can predict the future, even by a little bit.A major shift in legislation is one example: Building software that helps companies comply some laws may pass soon, you know you have a guaranteed customer base. Another solid bet for a guaranteed user base: Watch the Population Curve And realize that there are a lot of people who are retiring and need support. None of this is new; VCs have built dedicated thesis around these types of huge moves.
A recent McKinsey report shows that “investment in climate technologies is still rising, overcoming headwinds affecting most capital markets.”
VCs and founders alike love to talk about how they hope to make the world a better place. It’s cute, and might even be true for some of them. But make no mistake: In venture capital, like any other asset class, general partners have a fiduciary duty to their limited partners. Everyone can probably agree that making the world a better place is a good thing, but unless investors start seeing returns on their investments, massive investments can quickly become a trickle.