The marketing dilemma in todays start-up world can be defined by the need for capital to increase marketing, but also the need for marketing to gain capital. Read more

To understand how a leveraged venture capital fund works, you first need to understand some basics of how a traditional VC fund operates.Leveraged venture capital fund

VC funds collect capital from Limited Partners who invest in the fund.  The fund then invests this capital, assists the companies in growing and working towards a liquidity event and then returns capital and profits to investors.  The fund typically charges a 2% management fee and 20% carried interest to compensate them for all the work.  This means that after an investor receives 100% of their investment back, they also get to keep 80% of the profits.

A leveraged fund works just like a regular fund, except that it works double hard to benefit Limited Partners by creating “syndicates” or groups of investors on a platform like AngelList which then charges a carried interest to those platform investors.  The AngelList carried interest is also 20% and the platform keeps 5% and the syndicate lead, who in this case is the venture capital fund, gets to keep the 15% carried interest which it then distributes to its Limited Partners.How venture capital works

So how does this work?

Imagine that the VC is going to invest in a company that is looking to raise $1 million.  The VC may invest $500,000 of its own money in the company and then act as syndicate lead on AngelList for the remaining $500,000.  If the company was selling 20% of its equity, then the VC would own 10% and the AngelList syndicate would own another 10%.  Now imagine that the company has a 3X exit, so the VC gets $1.5 million and $1.3 million is distributed to Limited Partners.  (LPs get their original $500,000 plus 80% of the $1 million profit)  The AngelList investors get $1.3 million too.  But now, the VC also received another $150,000 in carried interest from the AngelList syndicate which is also distributed to its LPs (less the 20% carried interest), so they receive an additional $120,000.  The LPs thus had only an 8% net carried interest on the deal thanks to the leverage strategy and they put an additional $120,000 in their pockets which they would not have seen from a traditional VC fund.

For a leverage fund to work it has to have all the elements of a great Venture Capital fund in the first place.  They have to have a lot of deal flow and have the ability to pick the best opportunities and coach them along the way to a successful liquidity event.  They need to have a solid portfolio of companies that would provide excellent profits to LPs without the leverage.  But if all these things are in place, and then a leverage component can be added, then Limited Partners can see a significant benefit.

To learn more about Rockies Venture Fund and leveraged VC fund investing, visit us at www.rockiesventurefund.com

 

Venture Capital for DummiesPeter Adams is Executive Director of the Rockies Venture Club, Managing Director of the Rockies Venture Fund and teaches in the Colorado State University MBA Program.  Peter is co-author of Venture Capital for Dummies, (John Wiley & Sons 2013) Available at Amazon, Barnes and Noble and your local book store.

 

There’s a lot to know about angel investing, but the one thing most people miss is how to syndicate a deal.  Almost every angel investment deal in an entrepreneur’s company is a syndication and there’s a lot more to it than just getting a bunch of investors together.   Read more

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A Track Record of Success

Pursue your own successful investment strategy. Engage with thought leaders and experienced Angel investors. Don’t just take our word for it.  Explore these recent success stories made possible by the Angel Capital Summit (ACS) hosted by Rockies Venture Club (RVC). Read more

Rockies Venture Club is pleased to share the news that more than three years after passing the JOBS act, the SEC has adopted new rules to permit crowdfunding.  This means that those who could not previously qualify as an “accredited investor” with $1 million or more in assets or $200K in annual earnings or more, can now participate in early stage investing.

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A company can broadly solicit and generally advertise selling securities in order to raise capital for their company as long as the investors in the offering are all accredited investors. That brings us to the title of this post; what in the world is an accredited investor, and how does one become “accredited?” Read more

Many years ago almost all companies raising money used a PPM (Private Placement Memorandum) as the document to put the deal together.  The PPM typically consists of three or four parts including 1) A summary business plan that describes what the business is and how it is going to execute its plan 2) Risks involved in investing in the deal. 3) A term sheet that describes the terms of the deal and 4) the capitalization table showing existing shareholders, types of shares, percentages owned, etc.  The PPM was the selling document and, when signed, constituted the completion of the deal. Read more

Some people think only the mega-corporations like Exxon and BP are leading the way in oil and gas investment, but Angel Investors are having an impact as well.  In Colorado oil wells can be drilled for $1.5 million – about the same amount as a typical Angel Investment Deal.  Angels are profiting from these investments – even after the recent cuts in oil prices. Read more

Where are all the Angel Investors?

I get asked this question all the time and the answer is simple – “They’re all around you.”  But identifying them and building a collective network of angels to pool funds together to invest in deals is not easy in Colorado.  We’re lacking in Google and Facebook millionaires, and yet we have thousands of “Accredited Investors” in the state (with a net worth of $1 million or more excluding their primary residence, or income over $200K per year) Read more