Funding innovative ventures is particularly risky because of their innovative, dynamic, and unproven business nature. However, venture capital’s **financial reward can be very high and outperform ordinary investment asset classes in a much shorter term** (in terms of valuation and capital gain).

VC expected average returns are about 25-35% per year over a 10-12 year fund life.

Venture capital or financing, including venture debt, are specific financing instruments or asset classes for capital investments focused on innovative entities. Strategies to “derisk” vary from investor to investor, instrument to instrument, or at the fine print level of a term sheet and shareholder agreement. Thus, funders and founders must be well-informed about the nuances.

Most returns in a VC's portfolio come from a tiny fraction of investments

Fundraising rounds or stages labeled in capital fundraising indicate the (1) chronological sequence of the venture’s capital fundraising activity, (2) some indication of the stage of the company, and (3) the use of capital.

It is common for innovative ventures to raise multiple funding rounds to (1) continue funding the growth ambitions and (2) reach exit targets for previous equity shareholders.

To achieve a meaningful exit at a US$1bil IPO, your startup would need to raise a minimum 4-5 rounds (To achieve a cumulative of ~US$100-250mil) and maintain an average revenue valuation multiple of 4-10x

Innovative ventures resort to raising capital through equity financing (risk capital) because traditional financial institutions (e.g. banks) only offer debts (loans), which have a different appetite for capital risks and methods of making financial returns (e.g. interest and stable returns)

Investment criteria may change according to private equity market conditions to ensure that investment risks are well managed and to optimize investment capital.

There are two main types of venture capital investors

• Individuals - as Angel Investors who invest their own money directly
• Institutional investors Investment firms that have fund managers manage the investment activities of other larger institutions

The fundraising process or timeline varies depending on the stage of the investment, the interest in the investment, and the evaluation process

When an investor offers a term sheet a key non-binding agreement that sets the basis of the investment terms and conditions, it is considered a key milestone in getting to a “gentlemen’s” agreement of investing in the startup.