How Investors Back Tomorrow’s Companies: Venture Capital

How Investors Back Tomorrow’s Companies: Venture Capital

From early-stage startups to billion-dollar scale-ups, venture capital fuels innovation across the world. But what exactly does a VC do, how do they spend their days, and what makes them different from private equity investors? Are you a highly motivated and entrepreneurial student? Join the FSR x henQ | International Venture Capital Tour 2025 [1]!

What is a Venture Capital Fund

Venture capital, often called VC, provides equity financing to startups and young companies with strong growth potential. In other words, investors receive ownership in exchange for funding. VC firms raise this capital from limited partners such as pension funds, endowments, family offices, insurers, and other institutions. The money is pooled into a fund with a fixed lifespan, managed by general partners (GPs) who are responsible for finding promising startups, investing in them, and ultimately generating returns for the limited partners. In return for managing the fund, general partners receive a share of the profits known as “carry,” which is typically around 20% of the fund’s total gains. Unlike angel investors, who invest their own money, VC firms invest other people’s capital through structured funds. Angels are wealthy individuals who back startups personally, while venture capitalists invest on behalf of institutions. In addition to funding, VCs bring expertise, networks, and mentorship, helping founders make key decisions during the company’s most formative stages.

Each VC fund is created with a specific investment strategy in mind, focusing on industries such as technology or healthcare, or on particular stages of growth. A typical fund lasts between eight and twelve years, since young companies need time to grow before investors can earn returns. However, the first five years are usually the “investment period,” during which new deals are made. The remaining years are spent supporting portfolio companies and preparing them for profitable outcomes.

Venture capitalists invest across different stages of a startup’s journey. The very first funding, known as pre-seed or seed money, helps turn a concept into a product. Later rounds, such as Series A, B, and C, generally fall within the growth phase, when companies expand their teams, scale operations, and enter new markets. Series D and beyond are considered late-stage, used to strengthen the company before major strategic moves such as acquisitions or public listings [2], [3].

A Day in the Life of a Venture Capitalist

Life in venture capital is dynamic, combining financial analysis, relationship building, and strategic thinking. The work usually centers on four main activities. The first is deal sourcing: meeting founders, attending startup events, scanning accelerators, and maintaining a pipeline of potential investments. A pipeline simply refers to the list of opportunities a VC is tracking. The second is due diligence, a detailed review of a startup’s team, market, product, and financials to decide whether it’s a worthwhile investment. This process can include customer interviews, competitive research, and studying financial statements. The third responsibility is portfolio management, which involves supporting companies after investing. This can mean joining board meetings, helping with recruitment, or advising on strategy and partnerships. The fourth task, usually handled by senior partners, is fundraising which is raising money for the VC fund itself, not for startups.

Working hours can vary depending on deal flow and company needs, but typically range from sixty to eighty hours a week during busy periods. Compared to consulting or investment banking, the work is more autonomous and varied. Entry into VC often happens at the analyst or associate level, frequently after experience in investment banking, management consulting, or an MBA program. Some

professionals also enter the field as former entrepreneurs, bringing valuable industry experience and founder networks [4].

Qualities You Need as a Venture Capitalist

Successful venture capitalists combine analytical precision with creativity and a deep understanding of people. They rely on pattern recognition which is spotting signals of success or failure from previous experience, but also on first principles thinking, meaning they reason from basic truths rather than copying what others have done. Strong research and quantitative skills are essential, particularly for evaluating unit economics, which involves measuring revenues and costs per customer to test whether a business model can scale profitably.

Soft skills matter too. Venture capital is a relationship-driven business, so being able to communicate clearly, build trust, and support founders through uncertainty is vital. Many venture capital professionals, including general partners, specialize in specific sectors such as fintech, software, healthcare, or climate tech, while others focus on a particular investment stage. Operator experience, which means having built or scaled a company yourself, is increasingly valued. Founders often prefer investors who understand firsthand what it takes to turn an idea into a successful business [2], [3], [4].

Difference with Private Equity

Venture capital and private equity both involve buying ownership stakes in companies, but they operate in very different worlds. VC targets young, fast-growing startups that are often not yet profitable and may still be finding their product market fit, meaning they are working to prove that customers truly want their product. Private equity, on the other hand, focuses on mature businesses that already generate steady cash flows.

Venture capitalists typically take minority stakes and influence strategy through board seats and mentoring, emphasizing growth and follow-on funding. Private equity investors usually take full control of a company, implementing operational or financial changes to boost performance. Control position means owning enough of the company to make key decisions. Returns differ as well: VC funds often follow a “power law,” where a few big winners deliver most of the profits, while private equity aims for steadier, more predictable outcomes across multiple deals. Both seek profitable exits such as acquisitions or IPOs, but VC involves more risk and a greater focus on long-term innovation [3].