How Venture Capitals work by Ziad K Abdelnour

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How Venture Capitalists works?

• - Ziad Abdelnour

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About me

• Ziad K Abdelnour, Wall Street financier, trader
  and author is President CEO of Blackhawk
  Partners, Inc., a private family office that
  backs accomplished operating executives in
  growing their businesses both organically and
  through acquisitions and trades physical
  commodities mostly oil derivatives throughout
  the world.

• Contact me
• https//www.blackhawkpartners.com/
• https//www.ziadabdelnourblackhawk.com/
• https//www.ziadabdelnour.org/
• https//www.ziadabdelnour.net/
• https//www.ziadabdelnourauthor.com/
• https//www.ziadabdelnourfinance.com/
• http//www.economic-warfare.com/

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Venture Capitalists Work

• To recognize how venture capitalists are killing
  companies, you need to understand how venture
  capitalists work.
• Venture Capital firms typically have managers who
  we come to think of as investors because they
  sign the checks. The limited partners, on the
  other hand, are the investors in the venture
  capital firms themselves. Why are they called
  limited? Limited partners dont actually invest
  in VC firms or start-up companies because they
  invest in an individual firm. Most of these
  limited partners are massive financial
  institutions who work with venture capital on a
  diversified investment strategy capacity.
• And once a fund is raised by investors, the money
  is committed for the life of the fund. Venture
  capitalist then takes the limited partners money
  and use it to invest in a bunch of stock. Mind
  you there are strict rules on what VC funds can
  do with the money because they are limited
  partnerships.

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How to venture capitalists make money?

• They make money from successful exits, and
  original investments are returned to the Limited
  Partners. After that, 80 of profits are paid to
  the LPs while 20 of the profits are retained by
  the General Partners otherwise known as GPs.
• How is this killing start-ups? Ultimately, the
  fund structure of VCs isnt ideal for start-ups.
  Everything about the VC structure is misaligned
  from the structure to skills to timeline.

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How to venture capitalists make money?

• Most VC funds have 8 or 10 years to identify
  companies, nurture their teams, and eventually
  take them to exit. Only then can they return
  money to their LPs. The problem with this
  structure is that it takes most start-ups longer
  than 5 or 8 years to grow their companies to a
  meaningful size for a big public exit.
  Historically, most start-ups need at least 10
  years or more to reach a size considered stable.
  It Theres an obvious disconnect as theres no
  way a VC can get the benefit till the end because
  they have to return money to their LPs before
  they made any real big money.

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How to venture capitalists make money?

• And this is where it gets ugly. Worried that they
  wont make any real money, theyll start to
  convince the start-up to become something thats
  worth selling to someone else. These come in the
  form of meaningless and often expensive campaigns
  or a merger with another portfolio that is
  ill-advised. And if that doesnt work and theyre
  getting close to year 7, theyll look into
  selling the company to anyone willing to pay a
  decent price, regardless of what this could mean
  for the start-up.
• If none of these work, then its too bad, so sad
  for the companies who get pushed to either
  getting bought or going public, unless of course,
  they choose to go broke.

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How to venture capitalists make money?

• Ultimately, what kills companies is the demand
  for continued growth. VCs are bound by their
  contracts to return the stock to their LPs. One
  may even reason that they have no choice and
  their hands are tied. Or one might say that
  theyre not very bright and instead of taking
  better care of the start-up and nurturing it to
  become something incredible over the course of
  the funds life.
• Maybe if VCs started to focus on meaningful exits
  rather than fast ones, wed see more innovation
  thrive and stop seeing the demise of otherwise
  brilliant start-ups who were just a means to an
  end.

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Conclusion

• Although logical and comprehensible, this setup
  takes years to master. That is why its always
  best to advise a professional to analyze and
  advise you through the whole process to ensure a
  valuable investment. Blackhawk Partners can help
  you as a private equity investor and strategic
  advisor to grow your company.

Enquiry Now
Blackhawk Partner, Inc 445 Park Avenue, New
York, NY 10022
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