Year 3 · Applied Finance · Venture Capital
Venture Capital
Understand how venture investors evaluate early-stage companies, markets, founders, product traction, unit economics, ownership, dilution, term sheets, portfolio construction and exit outcomes under extreme uncertainty.
LEARNING OBJECTIVES
What you should be able to explain after this lesson
01
Explain how venture capital differs from private equity and public-market investing.
02
Understand startup financing stages from pre-seed through growth rounds.
03
Evaluate founders, market size, product-market fit, traction and business model quality.
04
Interpret core startup metrics such as ARR, burn, runway, CAC, LTV and retention.
05
Understand pre-money, post-money, ownership, dilution and basic term-sheet economics.
06
Explain power-law portfolio returns, follow-on reserves and exit logic.
CONCEPT MAPFrom startup thesis to venture return
Venture capital funds uncertain growth before cash flows are mature
CORE FACTS · SAME IN EVERY MODE
VC funds invest equity in private companies with high growth potential and significant failure risk.
Unlike buyout PE, venture investments are often minority positions and usually use little or no acquisition leverage.
Returns are highly skewed: a small number of successful companies can drive most portfolio value.
The investor underwrites potential future scale rather than stable current earnings.
BeginnerTeaching style changes, knowledge does not.
A VC fund invests in young companies that may become very large but may also fail completely. Because many investments will not work, the winners need to be unusually valuable.
COMPARISON
Venture capital vs buyout private equity
| Dimension | Venture Capital | Buyout PE |
|---|---|---|
| Company stage | Early / growth | Established |
| Ownership | Usually minority | Usually control |
| Leverage | Typically limited | Often material |
| Return pattern | Power law | More concentrated underwriting |
PROFESSIONAL VOCABULARYPower law / power law Minority investment / investissement minoritaire
Return pattern in which a small number of outcomes drive a disproportionate share of total value.
Investment that does not provide full control of the company.