Fundraising

At Visible, we oftentimes compare a venture fundraise to a traditional B2B sales and marketing funnel. At the top of the funnel, you are finding potential investors via cold outreach and warm introductions. In the middle of the funnel, you are nurturing potential investors with meetings, pitch decks, updates, and other communications. At the bottom of the funnel, you are working through due diligence and hopefully closing new investors. Related Resource: The Understandable Guide to Startup Funding Stages Just as a sales and marketing funnel starts by finding the right leads, the same is true for a fundraise. Founders raising venture capital should start by identifying the right investors for their businesses. If you’re a founder located in Brazil and are looking for venture capitalists in your area, check out our list below: Related Resource: 7 Best Venture Capital Firms in Latin America 1. Bossanova Investimentos As put by their team, “Bossanova is the most active VC in Latin America ; We invest in startups at the pre-seed stage; B2B or B2B2C companies with scalable and digital business models that are operating and making money.” Location Bossanova is headquartered in São Paulo and invests in companies across Latin America. Company Stage Bossanova is focused on pre-seed and seed stage companies. They invest between R$100k and R$1.5M. They look for companies with at least monthly income of R$20k Preferred industries Bossanova is focused on B2B or B2B2C companies. Related Resource: 60+ Active Seed Stage SaaS Investors & Fundraising Tips Portfolio Highlights Some of Bossanova’s most popular investments include: FanBase GrowthHackers Nimbly 2. Redpoint eventures As put by their team, “Redpoint eventures is a venture capital firm based in São Paulo. Our mission is to support Brazilian digital market entrepreneurs on their journey to create fast-growing companies. Together with its partners, prominent U.S.-based firms Redpoint Ventures and e.ventures, Redpoint eventures brings funding, Silicon Valley access and global best practices to promising startups. In addition to serving the companies in its portfolio, the fund’s team contributes to the development of the growing entrepreneurial ecosystem in Brazil.” Location Redpoint eventures is headquartered in São Paulo and invests in companies across Brazil. Company Stage Redpoint eventures does not publicly state what stage companies they invest in. Preferred industries Redpoint eventures does not publicly state what their focused industries are. Portfolio Highlights Some of Redpoint eventures most popular investments include: Gympass Pipefy Bossabox Learn more about Redpoint eventures by checking out their Visible Connect profile → 3. Canary As put by the team at Canary, “We are an operator fund: our partners are technology and investment entrepreneurs that have first-hand experience – and battle scars – from building and scaling products, teams, and organizations. Our approach is simple and supportive of founders.” Location Canary has office locations across Latin America and invests in companies across Latin America. Related Resource: 7 Best Venture Capital Firms in Latin America Company Stage As put by their team, “We’ve invested in rounds as small as USD 250K and as large as USD 15M+. We prefer and typically lead the first round, investing the largest amount of capital and defining the legal terms.” Preferred industries Canary is industry and business model agnostic. Portfolio Highlights Some of Canary’s most popular investments include: Alice Buser Trybe Learn more about Canary Ventures by checking out their Visible Connect profile → 4. Monashees As put by their team, “monashees is the pioneer venture capital firm in Latin America. It partners with outstanding founders who are revolutionizing large markets. The firm serves entrepreneurs starting with their very first movements, supporting their growth through its expansion funds. With a human-values-first approach, monashees helps founders challenge the status quo and improve people’s lives through technology.” Location Monashees is headquartered in Brazil and invests in companies across Latin America. Company Stage Monashees does not publicly state what stage they focus on and what check size they write. Preferred industries Monashees is focused on investing in companies operating in large markets. Portfolio Highlights Some of Monashees most popular investments include: Clara Jokr Loggi Learn more about Monashees by checking out their Visible Connect profile → 5. Quona Capital As put by their team, “Quona Capital is a global venture firm focused on inclusive fintech. We invest in startups expanding access to financial services for consumers and growing businesses across India and Southeast Asia, Latin America, Africa and the Middle East. We focus on markets that are massively underserved by the legacy finance infrastructure, where we see the biggest opportunity for transformation into more equitable financial systems.” Location Quona invests in companies across the globe and have offices across the globe. Company Stage Quona is stage agnostic. Preferred industries Quona is focused on fintech companies across the globe. Related Resource: FinTech Venture Capital Investors to Know Portfolio Highlights Some of Quona’s most popular investments include: Yoco Pillow Monkey Learn more about Quona by checking out their Visible Connect profile → 6. Valor Capital As put by their team, “Valor was founded in 2011 as the pioneer cross-border venture capital firm bridging the US, Brazilian and international tech communities. We invest in early stage tech companies in Brazil and international companies looking to expand into Brazil and the region. We are stage and sector agnostic. We are full lifecycle investors. We invest in business models that are only possible through the use of technology and, most importantly, we partner with companies that we believe are best positioned to leverage our relationship-capital and cross-border playbook.” Location Valor Capital has office locations in New York City and Brazil. Company Stage Valor Capital does not publicly share the stage of the companies they focus on. Preferred industries Valor Capital is industry agnostic but has a focus on crypto companies. Related Resource: 10 VC Firms Investing in Web3 Companies Portfolio Highlights Some of Valor Capital’s most popular investments include: Bitso BlockFi Coinbase Learn more about Valor Capital by checking out their Visible Connect profile → 7. Astella Investimentos As put by the team at Astella, “We support missionary founders building the future by leveraging the possibilities around consumer internet, software-as-a-service, and marketplaces We see ourselves as mentors. Our team brings a diverse, complementary and cohesive background around key growth disciplines We understand founders have two main paths to exponential growth: sheer brute force or intelligence. We believe that the right mix of knowledge and capital provides the best route for fast and efficient growth.” Location Astella Investimentos is headquartered in Brazil and invests in companies in Brazil. Company Stage Astella Investimentos is focused on early-stage companies. Preferred industries Astella Investimentos is focused on consumer internet, SaaS, and marketplace companies. Portfolio Highlights Some of Astella’s most popular investments include: Birdie BossaBox Zygo Elevate your investor outreach with Visible As we mentioned at the beginning of this post, a venture fundraise often mirrors a traditional B2B sales and marketing funnel. Just as a sales and marketing team has dedicated tools, shouldn’t a founder that is managing their investors and fundraising efforts? Use Visible to manage every part of your fundraising funnel with investor updates, fundraising pipelines, pitch deck sharing, and data rooms. Raise capital, update investors, and engage your team from a single platform. Try Visible free for 14 days.

Impact investments can be made across many different sectors and asset classes but target startups whose mission is to produce environmental or social benefits. These industries can include electric cars, renewable energy, sustainable agriculture, or affordable and accessible housing, healthcare, and education. Impact investing aims to target areas that are often missed by sustainability-themed approaches in an effort to tackle global problems as well as go after the underserved in the global economy. For each investment target, an SDG might invest in a range of companies that support that. For example, if the target is climate change their investments might go after green buildings and renewable energy. There is a growing focus of funds understanding the importance of embedding ESG practices into their investment thesis. Robeco defines ESG funds as “portfolios of equities and/or bonds for which environmental, social and governance factors have been integrated into the investment process. This means the equities and bonds contained in the fund have passed stringent tests over how sustainable the company or government is regarding its ESG criteria.” Mercer breaks down the following when it comes to key elements in investing and implementation. “Key elements of impact investing: Intentionality: contributing to positive social or environmental outcomes Measurability: the intended social or environmental impact needs to be measured and reported on clearly and reliably Additionality: pursue social or environmental benefits that would not have otherwise occurred without the investment. How to implement impact investing Investors typically approach an impact investment allocation with three key issues in mind: 1) intention and themes to target; 2) portfolio allocation and implementation options; 3) how outcomes will be measured and reported to different stakeholders. There are many ways that themes or topics can be identified and prioritized by investors. We have identified those that we believe are key from an impact investment perspective, in both environmental and social categories.” Resources IRIS+ is a great resource for developing impact measurement frameworks The GIIN’s Investors’ Council is a leadership group for active large scale impact investors. Events SOCAP is the largest and most diverse impact investing community in the world The GIIN Investor Forum is designed to advance and scale the impact investing market by bringing all the crucial elements of the world’s impact ecosystem together in one place. Social enterprise and impact investing events in 2022 Investors and Accelerators in the Space Impact investments are made by both institutional and individual investors such as private foundations, NGOs, individual investors, fund managers, family offices, as well as religious and financial institutions/ banks. Here are our top pics from our Connect Investor Database. Buoyant Ventures Location: Chicago, Illinois, United States Thesis: Digital Solutions for Climate, we look to make investments that adapt to and mitigate from climate change at the speed and scale required. Investment Stages: Seed, Series A Recent Investments: Raptor Maps SupplyShift FloodFlash To learn more about Buoyant Ventures check out their Visible Connect Profile. Better Ventures Location: Oakland, California, United States About: Better Ventures backs mission-driven founders leveraging breakthrough innovations in science and technology to build a more sustainable and equitable economy in which both people and planet thrive. Thesis: We back founders on a mission to build a better world. Investment Stages: Pre-Seed, Seed, Series A, Series B Recent Investments: SMBX 54gene agathos To learn more about Better Ventures check out their Visible Connect Profile. Obvious Ventures Location: San Francisco, California, United States About: Obvious Ventures brings experience, capital, and focus to startups combining profit and purpose for a better world. Thesis: Let’s reimagine trillion-dollar industries together. Investment Stages: Seed, Series A, Series B Recent Investments: Anagenex MycoMedica Life Sciences Tandym To learn more about Obvious Ventures check out their Visible Connect Profile. Bethnal Green Ventures Location: London, England, United Kingdom About: Europe’s leading early-stage tech for good VC. Thesis: We invest in ambitious and diverse founders using technology to create positive impact at scale. Investment Stages: Pre-Seed, Seed Recent Investments: aparito Chatterbox Commonplace To learn more about Bethnal Green Ventures check out their Visible Connect Profile. Blackhorn Ventures Location: Denver, Colorado, United States About: Blackhorn Ventures is an early stage venture firm that invests in capital-efficient companies redefining resource use, enabling the decarbonization of the toughest to transition sectors in our economy (Transportation, the Built Environment, Supply Chain, and Energy). Thesis:Blackhorn Ventures invests in world-class founders building digital infrastructure to redefine industrial resource efficiency. Investment Stages: Seed, Series A Recent Investments: CoFi Ecoworks.tech Iso.io To learn more about Blackhorn Ventures check out their Visible Connect Profile. Blue Bear Capital Location: San Rafael, California, United States About: Blue Bear Capital is a VC investor supporting companies that apply data-driven technologies to the energy supply chain. Investment Stages: Seed, Series A, Series B Recent Investments: Raptor Maps Copper Labs First Resonance To learn more about Blue Bear Capital check out their Visible Connect Profile. Braemar Energy Ventures Location: New York, New York, United States About: Braemar Energy Ventures was formed in 2002 to create a venture capital firm with that expertise. Focused exclusively on technology and communications opportunities in the energy sector, Braemar Energy Ventures has both the industry and operating knowledge to select promising young companies, bring them into the larger energy world and guide them to reach their full potential. Investment Stages: Pre-Seed, Seed, Series A, Series B, Growth Recent Investments: Utilidata LO3 Energy Aledia To learn more about Braemar Energy Ventures check out their Visible Connect Profile. Cultivian Sandbox Location: Chicago, Illinois, United States About: Cultivian Sandbox is a venture capital firm focused on building next-generation disruptive agriculture and food technology companies Investment Stages: Pre-Seed, Seed, Series A, Series B, Series C, Growth Recent Investments: Full Harvest Leaf Cooks Venture To learn more about Cultivian Sandbox check out their Visible Connect Profile. Core Innovation Capital Location: San Francisco, California, United States About: Core Innovation Capital is a venture capital firm investing in companies committed to empowering small businesses and everyday Americans. Investment Stages: Seed, Series A, Series B, Growth Recent Investments: Arrived Column Tax Ness To learn more about Core Innovation Capital check out their Visible Connect Profile. CRE Venture Capital Location: New York, United States About: CRE Venture Capital finances and partners with entrepreneurs in technology-enabled startups in Sub-Saharan Africa. Investment Stages: Seed, Pre-Seed, Series A Recent Investments: Stitch Sabi Carry1st To learn more about CRE Venture Capital check out their Visible Connect Profile. Start Your Next Round with Visible We believe great outcomes happen when founders forge relationships with investors and potential investors. We created our Connect Investor Database to help you in the first step of this journey. Instead of wasting time trying to figure out investor fit and profile for their given stage and industry, we created filters allowing you to find VC’s and accelerators who are looking to invest in companies like you. Check out all our investors here and filter as needed. After learning more about them with the profile information and resources given you can reach out to them with a tailored email. To help craft that first email check out 5 Strategies for Cold Emailing Potential Investors and How to Cold Email Investors: A Video by Michael Seibel of YC. After finding the right Investor you can create a personalized investor database with Visible. Combine qualified investors from Visible Connect with your own investor lists to share targeted Updates, decks, and dashboards. Start your free trial here.

In the dynamic world of business partnerships, understanding the nuanced differences between general partners (GPs) and limited partners (LPs) is crucial for founders. This article will dive into the roles, liabilities, control, and profit-sharing mechanisms that distinguish GPs from LPs, offering a comprehensive guide for those navigating the complexities of business partnerships. What is a General Partnership? A general partnership is an unincorporated business entity formed by two or more owners sharing business responsibilities. This structure is marked by its simplicity in setup and tax filing, but it comes with the caveat of unlimited personal liability for each partner. This means that each partner's personal assets are at risk for the business's debts and obligations​​​​. The Role of a General Partner Shifting the focus to the crucial role of a general partner, we enter the realm of leadership and active engagement in the partnership. General partners are at the forefront, steering the business through decision-making, financial oversight, and risk management. Their responsibilities are central to the partnership's operation, balancing the drive for growth with the interests of all partners. Management and Decision Making GPs play a pivotal role in the management and success of partnerships or investment funds, with their involvement being integral to both day-to-day operations and long-term strategic direction. Here's how GPs are actively involved: Management and Operations: GPs are deeply involved in the daily management of the partnership. This includes overseeing operations, managing staff, and ensuring that the partnership's activities align with its goals and objectives. Their hands-on approach ensures that operations run smoothly and efficiently​​. Decision Making: GPs have the authority to make key decisions that affect the partnership. This encompasses a wide range of areas from financial management, investment choices, to strategic planning. They assess various opportunities and risks to make informed decisions that will benefit the partnership over the long term​​​​. Investments and Strategy: GPs are responsible for the partnership's investment strategy. This involves identifying, evaluating, and executing investment opportunities as well as managing and divesting assets when necessary. Their goal is to maximize returns for the partnership while managing risk. This requires a deep understanding of the market, the ability to forecast trends, and the insight to act on these predictions in a timely manner​​​​. Alignment of Interests: By investing their own capital and making significant management decisions, GPs align their interests with those of the LPs. This ensures that their strategies and decisions are made with the best interests of the partnership in mind, fostering trust and commitment among all parties involved​​. Risk Management: GPs are also tasked with managing the partnership's exposure to risk. This includes financial risk, operational risk, and investment risk. They implement strategies to mitigate these risks, ensuring the partnership's stability and sustainability. This involves regular assessment of internal and external factors that could impact the partnership and adjusting strategies accordingly​​​​. Capital Contribution GPs typically invest a smaller portion of the total capital in a partnership or fund compared to LPs, yet the value of their investment is profoundly significant. This financial commitment aligns the GPs' interests with those of the LPs, ensuring a mutual focus on the partnership's success. By having "skin in the game," GPs demonstrate confidence in the partnership's strategies and decisions, reinforcing trust among LPs. This alignment not only motivates prudent risk management but also bolsters the partnership's stability and potential for growth, underscoring the critical role of GP investment beyond its face value​​​​. Liability and Risk Management GPs face unlimited liability, directly linking their personal assets to the partnership's financial obligations. This significant responsibility demands vigilant risk management and strict adherence to legal and regulatory standards to safeguard both the partnership and their personal finances. GPs must proactively mitigate risks and ensure compliance across all aspects of the partnership, a task that often requires expert consultation due to the complex nature of legal requirements​​​​. Fundraising and Investor Relations GPs play a critical role in securing the financial foundation of a fund through capital raising activities. Their responsibilities extend beyond merely attracting investments; GPs are deeply involved in fostering and maintaining relationships with both current and potential investors. This includes regular communication to keep investors informed about the fund's performance and strategic direction. The process of raising capital involves presenting the fund's value proposition to prospective investors, outlining potential returns, and articulating the strategic advantages of investing in the fund. GPs leverage their networks and industry knowledge to identify and engage with potential investors, employing persuasive presentations and detailed financial models to showcase the fund's potential. Maintaining investor relations is another key aspect of a GP's role. This involves providing timely updates and comprehensive reports on the fund's performance, including achievements, challenges, and strategic adjustments. Regular communication, such as newsletters, investor meetings, and performance calls, ensures transparency and keeps investors aligned with the fund's progress and long-term goals. Portfolio Management In the context of investment funds, GPs are pivotal in steering the fund's investment strategy, involving a multi-stage process of identifying, vetting, and managing investment opportunities. Initially, GPs undertake thorough market research and analysis to identify promising investment prospects, evaluating each for alignment with the fund's investment criteria and potential for returns. The vetting process includes comprehensive due diligence, where GPs assess the financial health, business model, market position, and growth potential of potential investments. This meticulous examination is critical to minimizing risks and ensuring that only the most viable opportunities are pursued. Once an opportunity is deemed suitable, GPs lead the deal execution, negotiating terms and finalizing investments. This phase requires a blend of financial acumen, negotiation skills, and strategic foresight to secure favorable terms for the fund. After the investment is made, GPs take on the ongoing management of portfolio companies. This involves active engagement with the management teams of these companies, providing strategic guidance, operational support, and sometimes, direct involvement in governance through board representation. The goal is to enhance value and ensure the company's growth trajectory aligns with the fund's investment objectives, ultimately leading to successful exits that generate returns for the fund's investors. What is a Limited Partnership? A Limited Partnership (LP) is a specific type of partnership that is distinguished by having one or more GPs who manage the business and are personally liable for partnership debts, alongside one or more LPs who contribute capital and share in the profits but have limited liability and are not involved in day-to-day management. This structure allows LPs to invest in the partnership without the risk of being held personally liable for the partnership's debts beyond their investment in the partnership. The general partner's role involves managing the partnership's operations, making key business decisions, and assuming full personal liability for the partnership's obligations. In contrast, limited partners act as passive investors, contributing capital and receiving a share of the profits but typically not engaging in the management or operational decisions of the partnership. This arrangement offers the benefit of pass-through taxation, similar to a general partnership, where the partnership itself is not taxed, but profits and losses are passed through to the partners to be reported on their individual tax returns. Limited Partnerships are commonly used for businesses that require investment without wanting to involve investors in daily management or for family estate planning to protect assets and manage tax liabilities. The formation of an LP requires compliance with specific state laws, including filing the necessary documents with the relevant state authority, usually the Secretary of State. The details of the partnership, such as the division of profits, roles of the partners, and operational procedures, are typically outlined in a partnership agreement. Related resources: 25 Limited Partners Backing Venture Capital Funds + What They Look For What Is a Limited Partnership and How Does It Work? The Role of a Limited Partner Unlike their general counterparts, limited partners contribute financially without immersing themselves in the day-to-day operational decisions of the partnership. This unique position allows them to invest and share in the profits while their liability is capped at their investment amount. As we delve into the role of a limited partner, we uncover the nuances of their involvement, the passive yet crucial contribution to the partnership's capital, and the protective bounds of their liability, setting the stage for understanding the symbiotic relationship between general and limited partners within the framework of a Limited Partnership. Capital Provision LPs are often passive investors, meaning they invest their money but do not take part in the day-to-day management or decision-making processes of the business. This category of investors typically includes institutional entities like pension funds, endowments, and insurance companies, as well as high-net-worth individuals who seek investment opportunities that do not require their active involvement in operations. The capital provided by LPs is vital for the fund's ability to pursue its investment strategy, whether it involves acquiring assets, funding new ventures, or expanding business operations. By contributing financially, LPs enable the partnership to leverage additional resources while limiting their personal risk to the amount they have invested. This arrangement allows LPs to benefit from the potential upside of the partnership's success, such as receiving a proportionate share of the profits, without the burden of unlimited liability or the complexities of daily management responsibilities​​​​​​. Limited Involvement in Management LPs play a distinct role within a partnership, primarily serving as financial contributors rather than being involved in the daily management or operational decisions. Their involvement is strategically financial, allowing the partnership to leverage their investment to fund projects, acquisitions, or growth initiatives without requiring their input on operational matters. The structure of a Limited Partnership is designed to benefit from the capital that LPs inject, while the GPs retain full control over the business decisions and management. This setup provides a clear division of responsibilities: GPs handle the operational aspects and decision-making processes, ensuring the business's strategic direction aligns with its goals, while LPs contribute financially, relying on the GPs' expertise to maximize the return on their investment. Limited Liability LPs liability is restricted solely to the amount of capital they have invested in the fund or partnership. This means that LPs are not personally responsible for any debts or obligations that exceed their investment. In essence, should the partnership incur debts or face financial challenges, the personal assets of LPs are shielded from creditors, ensuring that their maximum potential loss does not surpass the capital they have contributed. This protective measure is a defining feature of the LP structure, making it an attractive investment vehicle for individuals and institutions seeking exposure to the potential rewards of partnership investments without the risk of unlimited personal liability. It enables investors to participate in potentially lucrative ventures with the assurance that their risk is capped, providing a clear boundary between their investment and personal financial health. This limited liability encourages investment by reducing the financial risk to LPs, thereby facilitating the pooling of capital for the partnership’s activities​​​​​​. Monitoring Investment Performance Limited Partners (LPs) maintain oversight of their investments in a partnership through a structured approach to information sharing, facilitated primarily by General Partners (GPs). GPs are responsible for providing regular reports and updates that detail the partnership's financial performance, operational progress, and strategic developments. These communications are critical for LPs, as they offer insights into how their investment is being managed and its corresponding performance. The reports and updates typically include financial statements, performance metrics, market analysis, and updates on significant events or decisions. This transparency allows LPs to assess the health and trajectory of their investment, ensuring that their financial contributions are yielding expected results or identifying areas of concern that may need addressing. Beyond passive monitoring, LPs often play a role in key decision-making processes within the partnership. While they do not involve themselves in daily operations, LPs may have the right to vote on or approve major decisions that could impact the partnership's direction or financial status. This could include changes to the partnership agreement, substantial financial transactions, or decisions about the sale or acquisition of assets. Their involvement in these critical decisions ensures that their interests are considered in the partnership's strategic choices, aligning the partnership's operations with the expectations and goals of its investors. Receiving Returns on Investment LPs in a fund or partnership receive returns on their investment primarily based on the entity's financial performance. These returns are typically proportional to the size of their capital contribution, reflecting the principle that the greater the investment, the larger the share of the profits should be. The mechanism for distributing returns is designed to align with the partnership's success—when the partnership prospers, LPs benefit from higher returns, and conversely, their returns may diminish if the partnership faces financial difficulties. The distribution of profits to LPs often occurs after the partnership has achieved certain financial thresholds, ensuring that the operational needs and any preferential returns agreed upon for the GPs are met first. This structure incentivizes LPs to invest substantial capital, as their potential for financial gain is directly tied to the partnership's success, while also aligning their interests with the GPs, who are tasked with managing the partnership towards profitability. Differences Between General Partners and Limited Partners Having delved into the distinct roles and responsibilities of GPs and LPs within partnerships, it becomes evident that their contributions, while both crucial, diverge significantly in nature and scope. GPs are deeply entrenched in the day-to-day operations and bear unlimited liability, aligning their actions closely with the partnership's success. In contrast, LPs contribute capital and share in the profits while enjoying the protection of limited liability, remaining largely removed from operational decisions. These differences affect their involvement, financial risks, and the rewards they reap from the partnership. Management and Control GPs are crucial to the daily management and decision-making in a partnership, directly handling operations and strategic planning due to their unlimited liability. In contrast, Limited Partners LPs primarily offer financial investment, staying out of management to limit their risk exposure to their capital contribution. Liability GPs face unlimited personal liability, meaning that if the partnership incurs debts or legal claims that exceed its assets, GPs' personal assets can be used to fulfill these obligations. This unlimited liability reflects the GPs' active involvement in the management and operations of the partnership, holding them directly accountable for its financial health​​​​. In contrast, LPs enjoy a layer of protection from personal liability beyond their investment in the partnership. Their liability is limited to the amount of capital they have contributed, shielding their personal assets from claims against the partnership. This limited liability is a result of their passive role; LPs do not participate in the day-to-day management or decision-making processes of the partnership. Consequently, they are not held personally responsible for its debts or liabilities beyond their initial investment. Profit Sharing The distribution of profits and losses in a partnership typically aligns with each partner's investment and their role, as detailed in the partnership agreement. GPs, due to their active management and unlimited liability, might receive a share for their operational role plus a portion based on their investment. LPs, with limited liability, earn returns proportional to their investment, reflecting their financial contribution without direct operational involvement. The agreement also outlines how losses are shared, often paralleling profit distribution. This ensures a fair allocation based on each partner's stake and contribution to the partnership's success​​​​​​. Information Rights General Partners, who are actively involved in the day-to-day management of the partnership, have unrestricted access to all financial and operational data. This comprehensive access is necessary for GPs to make informed decisions, manage the partnership effectively, and fulfill their management duties. Their role requires a deep understanding of the partnership's financial health, operational challenges, and strategic opportunities, necessitating real-time access to all pertinent information. In contrast, Limited Partners typically have more restricted access to information. Their role as passive investors means they are not involved in daily management decisions, which is mirrored in their rights to information. LPs usually receive periodic reports that summarize the partnership's financial performance, significant operational updates, and strategic decisions. These reports are designed to provide LPs with a clear overview of their investment's performance without overwhelming them with the day-to-day details necessary for operational management. However, the extent of information rights for LPs can vary based on the partnership agreement. Some agreements may grant LPs rights to request additional information or detailed reports under specific circumstances, offering a mechanism for LPs to obtain further insights if they have concerns about the partnership's management or performance. Exit Strategies For General Partners, leaving can be more complex due to their integral role in management and operations. Exiting typically requires finding a replacement who can take over their responsibilities, which may necessitate approval from other partners, depending on the partnership agreement. Financial implications for GPs can include settling accounts related to their management activities and any personal liabilities tied to the partnership's debts. Limited Partners, given their passive investment role, usually have a more straightforward exit process. Their departure primarily involves the sale or transfer of their partnership interest, which can be subject to terms outlined in the partnership agreement, such as right of first refusal for other partners. Financially, LPs need to consider the market value of their investment and any potential capital gains tax implications. Both GPs and LPs must consider the partnership agreement's terms, which may specify conditions for exit, including notice periods, valuation methods for the partnership interest, and any restrictions on transfer. Additionally, the timing of the exit can significantly impact the financial outcome, with market conditions and the partnership’s performance playing crucial roles. Other Types of Partnerships While we've explored the traditional roles of general and limited partners in business partnerships, the realm of collaborative business ventures extends beyond these conventional structures. Each partnership type offers unique benefits, catering to specific business needs, risk appetites, and strategic goals. Other prevalent forms of partnerships that exist are: Joint Venture Partnerships: These are formed between two or more parties for a specific project or a limited period. Joint ventures allow entities to pool resources for a common goal, sharing profits, losses, and control, while still maintaining their separate legal identities. This structure is ideal for projects that require diverse skills, resources, or market access that a single entity cannot provide on its own. Limited Liability Partnerships (LLPs): Merging the features of partnerships and corporations, LLPs offer partners the operational flexibility of a partnership while providing a shield against personal liability for the actions of other partners. This is particularly attractive for professionals, such as lawyers, accountants, and architects, allowing them to benefit from the partnership's profits without risking their personal assets for the liabilities or professional misconduct of their partners. Partner With Visible for Expert Guidance and Access to High-Growth Ventures In this article, we've navigated the complexities of business partnerships, highlighting the distinct roles, liabilities, and contributions of GPs and LPs. Understanding these differences is crucial to forge successful partnerships, whether through traditional setups or alternative structures like Joint Ventures and LLPs. Each partnership model offers unique benefits and challenges, tailored to various business needs and goals. As you embark on or continue your entrepreneurial journey, aligning with the right partners and structure is key to growth and success. If you’ve read this post and determined that venture capital is a good fit for your company, let us help. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days. Related resource: A Quick Overview on VC Fund Structure

Raising capital from investors is a challenge for founders. Generating interest, building relationships, and making the case for why investors should fund a business can feel impossible at times. Founders are turning to investment memos to help outline crucial information to help investors build conviction in their business. To learn how to craft an investment memorandum for your business, check out our guide below: What is an Investment Memo? An investment memo, or investment memorandum, is a clear way to lay out and pitch your company to potential investors. Investment memos are a clear and concise document to lay out a strategic vision, rationale, and expectations for an investment, project, product, or strategy. Types of Investment Memos Memos are used in all aspects of business. From setting the tone for meetings to contacting prospects to making the case for an investment. For Venture Capital Traditionally in venture capital, many firms will write an investment memo when determining if they should invest in a new company or not. Most founders associate pitch decks with a fundraise. However, investment memos have made a presence in the space over the last few years. For the sake of this post, we will be focusing on how founders can leverage an investment memo, or investment prospectus, to attract new venture capital investors. If you are a founder who is more confident in your writing ability, an investment memo might make sense for you. Check out our tips and templates for creating an investment memo below: Use the YC Investment Memo Template to kick off your next fundraise. Give it a try here. Why Are Investment Memos Important? Investment memos are a powerful tool that can be used to power fundraising narratives, project guidelines, product pitches, and much more. They are becoming an increasingly important tool as communication continues to move to digital mediums. Conviction Memos are an easy way for stakeholders to form convictions around an idea. This is especially true when it comes to sharing an investment memo with potential investors but also holds true when using a memo for a product or strategic decision. Relationship Building When it comes to using investment memos for attracting investment it can be a great tool to build relationships. As we’ve mentioned in the past, venture fundraising is largely a relationship-building game. By being able to clearly articulate why someone should invest in your startup, investors will be able to build conviction (as mentioned above) and move on. This not only helps you get a quick answer but also demonstrates that you value their time and sets an expectation for communication moving forward. Alignment Investment memos are a surefire way to create alignment amongst your stakeholders. If raising capital, it will keep your current and potential investors in the loop with your messaging and the status of your round. Communicating with your team over a decision or project, will keep everyone in the loop and on the same page as the project moves forward. Ultimately, it can act as a source of truth to look back on post-memo. Related Resource: A Step-By-Step Guide for Building Your Investor Pipeline Pitch Deck vs. Investment Memo Traditionally speaking a pitch deck is at the backbone of a venture capital fundraise. Over the last few years, investment memos have become an integral tool of fundraising. More founders, especially those with strong writing skills, are turning to memos and written communication over the traditional pitch deck. Control Your Story Oftentimes a pitch deck is passed around and can be taken out of context. If there is simply an image or chart on a slide that can be deciphered in many different ways and can take the control of the story away from you. The investment memo has the ability to stand on its own. By sending a memo in advance you do not have to worry about the investors missing any context. Investors will be able to read and digest the memo on their own. Opposed to a pitch deck that may require a pitch and narrative around different components. Quick Decisions A memo will allow investors to quickly pass or take the next meeting. This way you can spend time on the firms that are truly interested. Succinct & Shareable When it comes down to it there is no way to know if a pitch deck or memo is going to be shared to outside stakeholders. As we mentioned above using a memo allows you to control the story if it does happen. As the team at Rippling puts it, “It aligns more closely with the material you’re sponsoring GP will ultimately put together about the investment. The final step in a VC’s evaluation of an investment in your company is usually a Monday morning full partnership meeting.If you’re fortunate enough to get this far in the fundraising process, you’re not the only person in the hot seat anymore.” Related resources: How To Write the Perfect Investor Update (Tips and Templates) What Should Be Included in an Investment Memo? When creating a memo for investment there are a few key components that the strongest investment memos will include: Purpose Why should I care? What is the purpose of the memo? Are you searching for investment? Be clear and concise in your purpose so investors can quickly understand what the purpose of your company and memo is. Problem What point of friction are you attacking? Money is made at points of friction. Define the problem you are solving and what the current process and pain point look like. Solution How are you removing (extracting value from) that friction point? How are you improving the current solutions? What makes your solution or product offering unique and have an edge in the market? Market Size How much value can you conceivably capture from this new offering? Be able to clearly define your market size and use the sections below to demonstrate how you will penetrate the market. Competition If the market is so big there must be others after it, right? While some argue that competition is not a good thing, a Blue Ocean approach to entering the market shows you have thoughtfully evaluated where others have failed and understand how to attack those areas. Product Development What is the actual product that will serve as the conduit for this better customer experience? What is the current state of the product and where will it be going? Does the capital you are raising fit into the future product roadmap? Sales & Distribution How will you make the market care about this cool product? Share your go-to-market strategy and any valuable data points you have to date. Use this as an opportunity to take a deep dive into revenue drivers. Metrics Have any of your previous predictions been tested and evaluated by your target market? How has it gone? Being able to clearly show traction over the previous periods will be a huge plus. Don’t be afraid to include a promising chart or 2. Team Are you the people that are going to connect all of these dots? Highlight the team and talent around you. Tell what makes your team unique and why they are the ones that can properly execute the problem and solution. Great Investment Memo Examples Like most founders, you likely don’t have experience writing investment memos. Luckily, there are countless examples from VC funds and other companies that have been shared so you have a good place to start. The YC Investment Memo Memos have been something that most of us likely associate with VC funds writing for a prospective investment. The YC memo flips this idea on its head. In the YC Series A Guide, they share an investment memo template aimed toward founders. YC suggests sending your memo to investors in advance of a meeting to set the tone for the conversation. YC makes the case that founders should write an investment memo is two-fold. First, it can set up a meeting with a potential investor nicely when sent in advance. Secondly, it helps you as a founder clarify your pitch, thoughts, and rationale. As the team at YC writes, “A memo is particularly effective if you can write well. It stands better on its own as the deck (sent ahead of time) can miss context provided by your voiceover. Founders tell us that memos sent before meetings in place of a deck provided the necessary to set up an engaged conversation from the outset.” Why this investment memo works: Opportunity to clearly articulate your metrics and current growth. Address the challenges that are preventing your growth. Share the market opportunity and get your new investors excited about the space. Use previous input from investors to get in front of any questions and objections you might face during a pitch. To give you an idea of what a memo may look like, we turned it into a Visible Update Template. YouTube Investment Memo Every company going out to try to raise capital from angel investors or VCs seems to have some derivative of the same question – “What should we include in our pitch deck?” While the outsize clout people give a simple slide deck may seem silly, it speaks the importance of being able to weave a compelling narrative about your business. Roelof Botha of Sequoia Capital is one of the most successful venture capitalists of all time. He sits on the board of companies like Square and Jawbone and led investments in Youtube and Meebo before they were acquired by Google. Recently, he checked in at #18 on CB Insights' list of the top 100 venture capitalists. Basically, he knows what it takes to build great companies and how those companies should think about raising capital. Thanks to court records from the 2010 Viacom-YouTube lawsuit, we can take a first-hand look at how the Youtube founders pitched Botha and how Botha pitched Youtube internally to his Sequoia partners. From there, we can better understand how companies should think about structuring their own pitches to investors as well as the major hurdles companies need to overcome to turn a potential investor into an advocate who makes sure to push their deal forward. Why this investment memo works: A real-life example from a proven and successful tech company. Example of how a later-stage company models its growth and future. Speeds up a fundraising process with the detail and information Sequoia needs to make an investment decision. Simplified decision-making for Sequoia as it was able to be easily shared with the team and partners. Botha on YouTube by GeorgeAnders Helpful Investment Memo Templates Y Combinator Investment Memo As we mentioned above the team at YC created an investment memo that founders can use when raising a round of venture capital. You can check out our YC investment memo template here (or below). Best for companies that: Are raising venture capital and want to demonstrate why an investor should invest. Have a founder who is better at communicating via writing than pitching/pitch deck. Want to layout their growth plans and business model to better understand their pitch and how investors view them. Executive Team Strategic Memo Andy Johns is a seasoned startup professional and currently a partner at Unusual Ventures. Andy recently published a blog post, A Simple Tool for Managing an Executive Staff as a First-Time CEO, to help first-time founders deal with their first executive hires. As Andy points out, managing an executive can be quite different than managing team individuals. “An executive’s job is to focus primarily on taking strategic risks. Each year, they should identify 2–3 major initiatives, large enough in impact to shape the direction of the company and enforce great execution against those initiatives. This is in contrast to non-executives, who you want to be focused primarily on tactical execution.” So how does a founder enforce execution against those initiatives? Andy suggests having your executives fill out a quick memo template for your executives to share with you. As Andy puts it, “Ideally, what they come back with is a strategy that has 2–3 major initiatives that they find are important, along with a list of success metrics and resources they need to get it done.” Once a founder gets a strategic memo from each executive it makes forming a strategy and roadmap for the company as a whole easier. These memos can be used to fuel your strategic and financial plan for the year, create performance plans with executives and individuals, and the kickoff discussion points for annual planning. Best for companies that: They have a growing executive team that needs better communication. Are remote or distributed and need a way to communicate asynchronously. Rely on quarterly or annual planning for goal setting and setting objectives. Check out the strategic memo template from the team at Unusual Ventures here. The EVERGOODS Product Brief The last memo is slightly different than the first two. EVERGOODS is a small equipment and apparel company based out of Bozeman, MT. EVERGOODS has a strong focus on building an incredible product and puts a great deal into R&D and perfecting every minor detail of their products (a couple of gear junkies on the Visible team can attest to this). As the founders, Jack and Kevin, put it, “Our experience lies in product design, development, R/D, and manufacturing for the likes of GORUCK and Patagonia. We believe in product and the processes of doing the work ourselves. Each project is an exploration, and ultimately a discovery, aided by our triumphs and our failures. This evolution inspires us and is at the heart of EVERGOODS.” Being gear junkies and product-focused ourselves, we found their product brief to be interesting and useful to more than equipment and apparel companies. While it may not translate directly to every industry, their brief is a great tool to help product-focused founders understand why and how they are building certain products and features. Best for companies that: If you have a product-driven business. If you need to prioritize customer feedback and product features for your product’s roadmap. If you want to clearly articulate what features are in the pipeline and why you are building them. Check out the product brief memo from EVERGOODS here. Each template above serves a different purpose. While each template may be entirely different they all have one thing in common: clear and concise communication. Setting up a system to properly share strategy and rationale concisely will not only strengthen relationships but keep all of your key stakeholders aligned. Get Started With Our Investment Memo Templates To help you craft and share an investment memo as easily as possible, we've put together a library of the best investment memo templates. Not sure where to get started? Check out the investment memo template from the team at Y Combinator below:

Carried interest is a fundamental concept in venture capital (VC) that plays a pivotal role in shaping the financial rewards for venture capitalists. This financial term, often shrouded in complexity, directly influences the profits venture capitalists receive from successful investments. As founders navigating the intricate world of VC funding, understanding carried interest is crucial not only for grasping how VCs are compensated but also for appreciating the motivations behind their investment decisions. This article demystifies carried interest, detailing what it is, its importance, how it functions within a venture capital framework, and its implications for both fund managers and investors. By unpacking the intricacies of carried interest, founders can better position themselves to partner with venture capitalists, aligning interests towards mutual success. Related resource: How to Find Venture Capital to Fund Your Startup: 5 Methods What is Carried Interest? Carried interest, in the realm of venture capital, refers to the share of profits that general partners (GPs) of a venture capital fund receive as compensation, beyond the return of their initial investments. This form of income is contingent upon the fund achieving a return on its investments above a specified threshold, incentivizing GPs to maximize fund performance. Typically, carried interest amounts to about 20% of the fund's profits, with the remaining 80% distributed among the limited partners (LPs), who are the primary investors in the fund. Why Carried Interest is Important Carried interest is a critical component of the venture capital ecosystem for several reasons. It aligns the interests of GPs with those of the LPs, ensuring that fund managers are motivated to seek out and support businesses with high growth potential. Additionally, it serves as a reward mechanism for GPs, compensating them for the risk and effort involved in managing the fund and guiding the companies in their portfolio to success. How Does Carried Interest Work? Venture capital thrives on the principle of aligned interests, with carried interest at its core serving as the linchpin for this alignment. In this section, we’ll cover how carried interest functions, from incentivizing fund managers to maximizing investment returns- cementing the foundation for understanding its critical role in venture capital's operational and strategic framework. Fund Structure and Contributions Venture capital funds operate as partnerships between Limited Partners (LPs) and General Partners (GPs). LPs, including institutions like pension funds and high-net-worth individuals, provide most of the capital but are not involved in day-to-day management, limiting their liability to their investment amount​​​​. GPs manage the fund, making investment decisions and actively advising portfolio companies, with their income primarily derived from management fees (typically 2%) and carried interest (about 20% of the fund's profits), aligning their financial incentives with the success of the fund​​​​. The structure, usually a limited partnership in the U.S., offers tax benefits through pass-through taxation, allowing profits to be taxed once at the partner level, and establishes a clear separation of operational roles and financial responsibilities between LPs and GPs​​. This model ensures a strategic alignment of interests, with GPs using their expertise to grow the investments and generate returns, acknowledging the inherent high-risk, high-reward nature of venture capital investing​​. Related resource: A Quick Overview on VC Fund Structure Management Fees Management fees in venture capital funds are structured to cover the operational and administrative costs of managing the fund. These fees are typically calculated as a percentage of the fund's committed capital, ranging from 1% to 2.5%, and are charged annually to the fund's limited partners (LPs). The exact percentage can vary based on several factors including the size of the fund, the investment strategy, the fund's performance, and market norms. For instance, a fund with $100 million in committed capital charging a 2% management fee would incur a $2 million annual fee​​. The primary purpose of management fees is to cover day-to-day operational costs such as salaries, office rent, legal and accounting services, due diligence costs, and other expenses associated with running the VC firm. This ensures that venture capital firms can continue to provide investment opportunities and support to their portfolio companies without compromising on the quality of management and oversight​​. Management fees are an important consideration for both venture capital firms and their investors as they directly impact the net returns of the fund. While these fees are essential for the operation of venture capital firms, it's important for LPs to understand how they are structured and the factors that influence their calculation to ensure transparency and alignment of interests​​​​. Profit Wharing: The 'carry' Carried interest, or "carry," is a profit-sharing mechanism in venture capital funds, allowing fund managers (GPs) to receive a portion of the fund's profits, aligning their interests with the investors' (LPs). Typically, GPs earn carry after returning the initial capital to LPs, with a common share being around 20%, although this can vary from 15% to 30% based on market conditions and the fund's performance​​​​. Carry is distributed after certain conditions are met, such as the return of initial investments and possibly achieving a hurdle rate. The distribution models include European-style, focusing on overall fund performance, and American-style, based on individual investment performance. The taxation of carried interest at capital gains rates, lower than ordinary income rates, has been debated as a potential "loophole"​​. Hurdle Rate The hurdle rate is essentially a benchmark return that the fund must achieve before the fund managers (GPs) can start receiving their share of carried interest, which is a percentage of the fund's profits. This rate serves as a minimum acceptable return for investors (LPs) and ensures that GPs are rewarded only after generating sufficient returns on investments​​. There are two primary types of hurdle rates: hard and soft. A hard hurdle implies that the manager earns carried interest only on the returns exceeding the hurdle rate. In contrast, a soft hurdle allows the manager to earn carried interest on all returns once the hurdle rate is met, including those below the hurdle​​. The purpose of establishing a hurdle rate is to align the interests of fund managers with those of the investors, ensuring that fund managers are incentivized to achieve higher returns. The actual percentage of the hurdle rate can vary but is often related to a risk-free rate of return or a predetermined fixed rate. This mechanism ensures that fund managers focus on exceeding specific performance targets before benefiting from the fund's success​​​​. In the context of venture capital, the typical hurdle rate is around 7-8%, benchmarked against returns from less risky asset classes like public stocks. This reflects the expectation that investors locking their money in a VC fund for an extended period should achieve annual returns exceeding those of more liquid and less risky investments​​. Understanding the hurdle rate and its implications is crucial for founders considering venture capital funding, as it impacts how and when fund managers are compensated, ultimately affecting the fund's investment strategy and focus. Distribution Waterfall The distribution waterfall process in VC funds is a structured method to allocate capital gains among the participants of the fund, primarily the LPs and the GP. This process ensures that profits are distributed in a sequence that aligns the interests of both LPs and GPs, establishing fairness and transparency in the profit-sharing mechanism. Understanding the distribution waterfall is crucial for founders as it impacts how VCs are incentivized and how profits from successful investments are shared. This knowledge can be particularly beneficial when negotiating terms or evaluating potential VC partners. The waterfall structure typically follows a hierarchical sequence with multiple tiers: Return of Capital: This initial tier ensures that LPs first receive back their initial capital contributions to the fund. Preferred Return: After the return of capital, LPs are entitled to a preferred return on their investment, which is a predetermined rate signifying the minimum acceptable return before any carried interest is paid to the GP. Catch-up: This tier allows the GP to receive a significant portion of the profits until they "catch up" to a specific percentage of the total profits, ensuring they are adequately compensated for their management and performance. Carried Interest: In the final tier, the remaining profits are split between the LPs and the GP, typically following an 80/20 split, where 80% of the profits go to the LPs and 20% as carried interest to the GP. This tier rewards the GP for surpassing the preferred return threshold and generating additional profits. The distribution waterfall can adopt either a European (whole fund) or American (deal-by-deal) structure. The European model favors LPs by requiring the return of their initial investment and preferred returns before the GP can receive carried interest, enhancing long-term investment returns motivation. In contrast, the American model allows GPs to receive carried interest on a per-deal basis, potentially enabling them to realize gains more frequently but also includes mechanisms like clawback clauses to protect LP interests if overall fund performance does not meet expectations. Long-term Incentive Carried interest aligns fund managers' (GPs') interests with investors' (LPs') by linking GP compensation to the fund's long-term success. It rewards GPs with a portion of the profits only after meeting predefined benchmarks, such as returning initial capital to LPs and achieving a hurdle rate. This ensures GPs are committed to selecting investments and supporting them to maximize returns over the fund's life, often spanning several years. For founders, this means VC firms are incentivized to contribute to their company's growth and success genuinely, reflecting a partnership approach aimed at mutual long-term gains. Understanding Clawbacks and Vesting Clawbacks and vesting are key elements tied to carried interest in venture capital, designed to align the interests of fund managers (GPs) with the fund's long-term success and the investors' (LPs') expectations. Clawbacks act as a financial safeguard for investors. Imagine a scenario where a sports team pays a bonus to its coach based on mid-season performance, only for the team to finish the season at the bottom of the league. Similarly, clawbacks allow LPs to reclaim part of the carried interest paid to GPs if the fund doesn't meet overall performance benchmarks. This ensures GPs are rewarded for the fund's actual success, not just early wins. Vesting in the context of carried interest is akin to a gardener planting a tree and waiting for it to bear fruit. Just as the gardener can't harvest immediately, GPs earn their carried interest over time or upon meeting certain milestones. This gradual earning process keeps GPs motivated to nurture the fund's investments throughout its lifecycle, ensuring their goals align with generating lasting value for LPs. Together, clawbacks and vesting weave a tapestry of accountability and commitment in the venture capital ecosystem. They ensure that the journey to financial reward for GPs mirrors the fund's trajectory towards success, fostering a harmonious alignment of objectives between GPs and LPs in cultivating prosperous ventures. Carried Interest Calculation Calculating carried interest involves determining the share of profits that general partners (GPs) in a venture capital or private equity fund receive from the investments' returns. Here's a simplified process to understand how carried interest is calculated, keeping in mind that actual calculations can get more complex based on the fund agreement: Determine the Profit: Start with the total returns generated from the fund's investments after selling them, then subtract the original capital invested by the limited partners (LPs). This figure represents the profit. Profit = Total Returns - Initial Capital Apply the Hurdle Rate (if applicable): Before calculating carried interest, ensure that the returns have met any specified hurdle rate or preferred return rate. This rate is the minimum return that must be provided to LPs before GPs can receive their carried interest. Calculate Carried Interest: Once the profit is determined and any preferred return obligations are met, apply the carried interest rate to the profit. This rate is usually agreed upon in the fund's formation documents and is typically around 20%. Carried Interest = Profit x Carried Interest Rate For example, if a fund generates $100 million in returns with $80 million of initial capital, the profit is $20 million. If the carried interest rate is 20%, the GPs would receive $4 million as carried interest. Example Calculation: $20 million (Profit) x 20% (Carried Interest Rate) = $4 million (Carried Interest) Remember, this is a basic overview. The actual calculation may include additional factors like catch-up clauses, tiered distribution structures, and specific terms related to the return of capital. Fund agreements often detail these calculations, reflecting the negotiated terms between GPs and LPs. Tax Implications for Carried Interest Carried interest is taxed under the capital gains tax regime, which typically offers lower rates compared to ordinary income taxes. This tax treatment applies because carried interest is considered a return on investment for the GP of a VC or private equity fund, which receives this compensation after achieving a profit on the fund's investments. To qualify for long-term capital gains tax rates, the assets generating the carried interest must be held for a minimum of three years. This structure is sometimes debated for its fairness, with some viewing it as an advantageous "loophole" for high-income investment managers, allowing them to pay taxes at a lower rate compared to ordinary income rates​​​​. Unlock Venture Capital Opportunities with Visible Navigating the venture capital landscape can be a complex journey, but understanding the nuances of carried interest demystifies a crucial aspect of VC funding. This knowledge not only enlightens founders on how venture capitalists are rewarded but also sheds light on the motivations driving their investment choices. Through this exploration, we've delved into the essence of carried interest, from its foundational role in aligning GP and LP interests to its implications on fund structure, management fees, profit sharing, and more. Armed with these insights, founders are better equipped to forge partnerships with VCs, ensuring a unified path to success. As you venture further into the intricacies of raising capital and managing investor relations, remember that tools like Visible can significantly streamline your efforts. Visible empowers you to effectively raise capital, maintain transparent communication with investors, and track important metrics and KPIs. With Visible, navigating the venture capital process becomes more manageable, allowing you to focus on growth and innovation. For more insights into your fundraising efforts, Visible is the go-to platform. Raise capital, update investors, and engage your team from a single platform. Try Visible free for 14 days. Related resource: 25 Limited Partners Backing Venture Capital Funds + What They Look For

It’s common for venture firms to start raising their next fund in the last year of capital deployment, typically years 3-4 of a fund’s life. This poses a sort of chicken-and-egg problem because many of the common fund performance metrics that Limited Partners use to drive allocation decisions only become reliable, and therefore more meaningful, around year six (Source: Cambridge Associates). Farooq Abbasi, founder and General Partner of Preface Ventures, created a Seed Stage Enterprise VC Funding Napkin to help GPS think through alternative fund metrics that help communicate performance outside the traditional indicators that LPs use to measure success for more mature funds. The Seed Stage Enterprise VC Funding Napkin helps answer the question "What is good enough to raise a subsequent fund in the current market conditions". Farooq from Preface Ventures joined us on Tuesday, February 27th for a discussion about the fund performance metrics GPs can use to benchmark and communicate fund performance when it's still 'early'. View the recording below. Webinar Topics The issue with ‘typical’ fund performance metrics for ‘early’ funds Overview of Preface Venture’s Seed Stage Enterprise VC Funding Napkin Deep dive into alternative early performance benchmarks How to keep track of alternative fund performance metrics How to leverage alternative fund performance indicators into your fundraising narrative Inside look into how Preface Ventures keeps LPs up to date Q&A Resources From the Webinar Christoph Janz's What does it take to raise capital, in SaaS, in 2023? Preface Ventures' A GP's View on VC Fund Performance When It's Early Diversity VC About Preface Ventures Preface Ventures is a New York City-based firm started in 2020 led by Farooq Abbasi. Preface invests $500-$2M at the pre-seed and seed stage into startups who are building the Frontier Enterprise structure. Preface has 20 active positions in Fund II and 7 active positions in Fund III. (Learn more)

The creator economy is rapidly transforming the global economy, driving billions of dollars in value as it reshapes how content is created, distributed, and monetized. At the intersection of technology and creativity, startups within the creator economy are pioneering innovative platforms and tools that empower individuals to turn their passions into professions. This rapidly growing sector not only offers vast opportunities for creators but also attracts significant attention and investment from venture capitalists keen to support the next wave of digital innovation. What is the creator economy? In today's digital age, the "creator" embodies a broad and dynamic role, reflecting the vast opportunities for individual creativity and entrepreneurship online. A creator is anyone who produces content across various platforms to engage, entertain, or educate an audience, leveraging digital tools and social media to monetize their skills and passions. This definition spans from writers, artists, and musicians to influencers, vloggers, and podcasters, among others, who utilize platforms like YouTube, TikTok, Instagram, and Twitch to share their work and generate revenue through ad shares, sponsorships, merchandise sales, and more​​​​​​. The creator economy has democratized content production and distribution, enabling individuals to turn their passions into professions without the traditional barriers of entry like access to large capital or institutional gatekeepers. With just a smartphone and internet access, creators can reach a global audience, exemplified by individuals who have gained fame and financial success through platforms like TikTok and YouTube with minimal initial investment​​. In the evolving landscape of the creator economy, founders, content creators, and VCs are witnessing a dynamic shift towards diversified revenue streams beyond traditional brand partnerships. The spotlight has increasingly turned towards direct audience monetization strategies, including digital product sales, affiliate marketing, ad revenues, and brand deals. This shift underscores the importance for stakeholders in the creator economy to innovate and adapt. For creators, it's about embracing new technologies and platforms to engage with audiences and monetize their content effectively. For founders and VCs, the emphasis is on investing in and developing tools that support creators in these endeavors, recognizing the value of direct audience relationships and the growing independence of creators from traditional advertising models. It's not just about creating content but also about understanding the ecosystem's business models, audience engagement strategies, and monetization mechanisms. As the creator economy continues to evolve, staying informed and adaptable will be key to leveraging its potential for individual growth and investment opportunities. Related Resource: 18 Pitch Deck Examples for Any Startup Creator Economy Areas of Investment VCs are investing in tools to help influencers operate and monetize. Here are some examples of the areas of focus that we gathered from SignalFire’s Creator Economy Market Map. Related Resource: 14 Gaming and Esports Investors You Should Know Content Creation Tools Video Photography / Graphic Design Motion Photos Music Podcast Influencer Marketing Specialized Influencer Marketing Agencies. Influencer Marketing Platforms and Marketplaces: CRM Tools Patronage Platforms Ad Hoc Project-Based Funding Kickstarter, Indiegogo, and GoFundMe Subscription-Based Funding Patreon Tip Jar Concept Ko-fi and Buy Me a Coffee Other Opportunities Community Engagement Tools Finance Management Tools Top 8 VCs Actively Investing in the Creator Economy Venture capitalists play a crucial role in fueling the growth of the creator economy by providing the necessary capital and resources for startups to thrive. Here are eight leading VCs that are making significant investments in this sector: 1. SignalFire Location: San Francisco, California, United States About: SignalFire is a venture capital firm that invests in seed-stage companies and breakout companies. Investment Stages: Seed, Series A, Series B Popular Investments: OneSignal Ledger Investing Join Check out SignalFire’s Visible Connect Profile, to learn more! 2. Antler About: Antler is a global startup generator and early-stage VC that is building the next big wave of tech. With the mission to turn exceptional individuals into great founders, Antler aims to create thousands of companies globally. Thesis: We identify and invest in exceptional people Investment Stages: Pre-Seed, Seed Popular Investments: Mast Technologies Upflowy Appboxxo Check out Antler’s Visible Connect Profile, to learn more! 3. Harlem Capital Location: New York, United States About: Harlem Capital is an early-stage venture firm that invests in post-revenue tech-enabled startups, focused on minority and women founders. Thesis: Women or POC founders (no deep tech, bio, crypto, hardware) Investment Stages: Seed, Series A, Series B, Growth Popular Investments: Lami Gander The House of LR&C Check out Harlem Capital’s Visible Connect Profile, to learn more! 4. Night Ventures Location: Texas, United States Thesis: Our LPs are 50+ of the top creators in the world across YouTube, TikTok, Twitch and elsewhere. Together, we specialize in influence – understanding what’s popular, what’s trending and how to acquire more customers/fans of your product. Popular Investments: Moonpay Pearpop Beacons Check out Night Ventures’ Visible Connect Profile, to learn more! 5. Slow Ventures Location: San Francisco, California, United States About: Slow Ventures invests in companies central to the technology industry and those on the edges of science, society, and culture. Thesis: Slow Ventures invests in companies central to the technology industry and those on the edges of science, society, and culture. Investment Stages: Seed, Series A Popular Investments: Juice Stem Human Check out Slow Ventures’ Visible Connect Profile, to learn more! 6. Behind Genius Ventures (BGV) Location: Los Angeles, California, United States About: Behind Genius Ventures invests in pre-seed/seed stage companies centered around product-led growth. Co-Founded by two Gen Z investors: Joshua Schlisserman and Paige Doherty. Investment Stages: Pre-Seed, Seed Popular Investments: Decaf Impulse Maca Payments Check out BGV’s Visible Connect Profile, to learn more! 7. Crush Ventures Location: LA and NYC About: We formed Crush Ventures to focus on early stage investing at the intersection of media, culture, and commerce. To founders, we bring to bear our capital, operating expertise and powerful relationship network earned from two decades spent building Crush Music into a global powerhouse. Thesis: We invest in founders building the future of how talent will discover, engage, and monetize fans. Investment Stages: Pre-Seed, Seed RPopular Investments: Beacons Create O/S Splice Check out Crush Venture’s Visible Connect Profile, to learn more! 8. Freestyle Capital Location: California, United States About: Freestyle is an early-stage VC with $565M+ AUM & investments in 150+ tech co’s like Airtable, Intercom, Patreon, BetterUp and Snapdocs. Thesis: We are high-conviction, low-volume investors and invest in only 10-12 companies each year. This gives us the freedom to work closely with founders, and holistically support our companies. We typically lead Seed rounds with a $1.5M — $3M check. We make decisions efficiently and are 100% transparent with you along the way. We invest in founders building soon-to-be massive tech companies across many verticals. Investment Stages: Pre-Seed, Seed Popular Investments: Spot Change Grain Check out Freestyle’s Visible Connect Profile, to learn more! Top 8 Content Creation and Creator Economy Startups As venture capital continues to flow into the creator economy, numerous startups have emerged as leaders in facilitating content creation, distribution, and monetization. These companies are at the forefront of innovation, providing creators with the tools and platforms they need to succeed in a digital-first world. Related Resource: 7 Startup Growth Strategies 1. Caffeine Caffeine is a live-streaming platform that focuses on gaming, sports, and entertainment content. Founded by Ben Keighran and Sam Roberts, it went live in early 2018 and has quickly gained traction among users and creators alike. Caffeine distinguishes itself by emphasizing interactive and real-time engagement between broadcasters and their audiences, aiming to create a more dynamic and engaging experience than traditional broadcasting platforms. Location: Redwood City, California. Funding Rounds and Amount Raised: Caffeine has successfully raised significant funds through various rounds. In September 2018, it secured a $100 million investment from 21st Century Fox. As of 2019, the company had raised $146 million from investors across three rounds, including prominent names like 21st Century Fox, Andreessen Horowitz, and Greylock Partners​​. 2. Spotter Spotter is an innovative startup that has carved a unique niche within the creator economy, focusing on YouTube content creators. It offers a financial model that provides creators with upfront cash for licensing their existing or upcoming content. This approach is designed to assist creators in scaling their brands, funding ambitious projects, and growing their businesses more efficiently. Spotter’s model is likened to a venture capital investment but for the digital content creation space, aiming to secure a stake in the future success of these creators by investing in their content libraries​​​​​​. Location: Los Angeles, California. Funding Rounds and Amount Raised: A significant milestone was a $200 million Series D funding round led by SoftBank Vision Fund 2, part of a combined $755 million raised across this and other undisclosed rounds. This influx of capital has elevated Spotter's valuation to $1.7 billion. The company plans to invest $1 billion directly into its YouTuber partners to assist in their business growth. Spotter's total funding has reached $240.6 million, underscoring its robust financial backing and confidence from investors​​​​​​. 3. Jellysmack Jellysmack leverages machine-learning technology and data analytics to create and optimize video content for social media platforms. Founded in 2016, it aims to identify social video trends, optimize video performance, and uncover niche audience segments to build vibrant communities around content creators. Jellysmack is known for its innovative approach to the creator economy, helping creators amplify their reach and monetization across multiple platforms​​. Location: New York with additional offices in Los Angeles, Corte, Corsica, Paris, and London​​. Funding Rounds and Amount Raised: Jellysmack has secured $16 million in total funding. 4. Passionfroot Passionfroot provides a unified no-code platform for creators, focusing on simplifying their business operations. It offers tools for storefront management, CRM, collaborations, and cash flow, targeting younger millennial & GenZ creators and small media brands, particularly those involved in B2B monetization like sponsorships and ad placements. Location: Berlin, Germany. Funding Rounds and Amount Raised: Raised €3.4 million in a pre-seed funding round. 5. Stir Stir is a platform designed to help digital creators manage their revenue streams, analytics, and collaborations. It facilitates the sharing of funds among collaborators, aiming to streamline the financial aspects of content creation. The startup has introduced tools like Collectives for shared financial management among creators. Location: San Francisco, California. Funding Rounds and Amount Raised: Stir raised $4 million in a seed funding round with contributions from notable investors including Casey Neistat, YouTube co-founder Chad Hurley, and others​​. 6. Kajabi Kajabi, founded in 2010 by Kenny Rueter, is a SaaS platform designed for creators and entrepreneurs to create, market, and sell digital content. It has quickly risen to prominence as a tech unicorn, valued at $2 billion. The platform supports creators across various niches, offering tools for online courses, membership sites, and more, emphasizing its role in the booming creator economy. With a mission to empower digital entrepreneurs, Kajabi has facilitated over $3 billion in sales, serving thousands of users worldwide. Location: Irvine, California. Funding Rounds and Amount Raised: In November 2019, Kajabi received its first outside investment from Spectrum Equity Partners. A significant funding milestone was reached in May 2021 with a $550 million round led by Tiger Global, along with TPG Capital, Tidemark Capital, Owl Rock, Meritech Capital, and Spectrum Equity, catapulting Kajabi to a $2 billion valuation. 7. Linktree Linktree, launched in 2016 by co-founders Alex Zaccaria, Anthony Zaccaria, and Nick Humphreys, revolutionized the way individuals and businesses manage their online presence. Conceived as a solution to the limited link options on social media platforms, Linktree enables users to share multiple content links through one bio link, facilitating a centralized online presence. This technology startup quickly became a staple tool for influencers, creators, publishers, and brands, seeking to streamline their digital footprint. The platform's user-friendly interface and versatile application across various social media sites have propelled its growth, making it a critical tool in the digital arsenal of the modern internet user. Location: Melbourne, Australia, with additional operations in Darlinghurst, NSW, Australia​​. Funding Rounds and Amount Raised: Linktree has raised over a series of 4 rounds with a total of $176.2 million invested. 8. Sagespot SageSpot, established in 2020, emerges as a transformative player within the creator economy, offering a subscription-based social media platform. This innovative platform distinguishes itself by empowering creators to foster interest-based communities, enabling a direct monetization path through engaged and dedicated followers. By focusing on this model, SageSpot aims to rectify the monetization challenges creators face on legacy platforms, providing a more sustainable and creator-focused alternative for monetizing content and personal brands. The platform's focus on subscription-based models offers a promising alternative to ad-revenue dependency, potentially leading to a more sustainable and fulfilling creator-follower relationship. Location: New York. Funding Rounds and Amount Raised: $5.6 million led by Khosla Ventures. Related Resource: 7 Essential Business Startup Resources Looking for Funding? Visible Can Help- Start Your Next Round with Visible We believe great outcomes happen when founders forge relationships with investors and potential investors. We created our Connect Investor Database to help you in the first step of this journey. Instead of wasting time trying to figure out investor fit and profile for their given stage and industry, we created filters allowing you to find VC’s and accelerators who are looking to invest in companies like you. Check out all our investors here and filter as needed. After learning more about them with the profile information and resources given you can reach out to them with a tailored email. To help craft that first email check out 5 Strategies for Cold Emailing Potential Investors and How to Cold Email Investors: A Video by Michael Seibel of YC. After finding the right Investor you can create a personalized investor database with Visible. Combine qualified investors from Visible Connect with your own investor lists to share targeted Updates, decks, and dashboards. Start your free trial here and check out Visibles Fundraising page: https://visible.vc/fundraising Related resources: Valuing Startups: 10 Popular Methods Seed Funding for Startups 101: A Complete Guide The Ultimate Guide to Startup Funding Stages

D2C brands have disrupted the retail industry and proven success by offering products at a lower price through eliminating the middleman- as well as offering customers an experience and superior support that traditional retailers are unable to compete with. Along with this new business model, D2C brands are also capable of achieving rapid growth through a digital-first approach which explains why these companies are receiving higher valuations and more VC investments than your traditional retailer. As D2C companies reach out to investors it’s important to know that they focus on companies that can make a case for long-term success, beyond the pandemic eCommerce boom. Those that can create personalized customer experiences that are engaging through an innovative tech stack have been shown to be favored by investors. Not to worry though, Shopify highlights some promising stats in their article- Why More Brands are Using the Direct-to-Consumer Model, “The growth of the DTC industry isn’t set to die down anytime soon. Data compiled in The Direct-to-Consumer Guide shows e-commerce is expected to account for 6.6% of all consumer packaged good (CPG) sales. The DTC movement accounts for 40% of the sales growth in the sector. By 2022, the number of DTC eCommerce customers will hit an all-time high of 103 million.” Visible looks to help connect founders with investors all over the world. Below, we highlight 16 of our favorite D2C venture capitalists. Search through these investors and 13,000+ more on Visible’s Connect platform. Lightspeed Venture Partners Location: Menlo Park, California About: Lightspeed Venture Partners is a venture capital firm that is engaged in the consumer, enterprise, technology, and cleantech markets. Thesis: The future isn’t built by dreamers. It’s built today, by doers. Investment Stages: Pre-Seed, Seed, Series A, Series B, Growth Popular Investments: Cycognito, Kodiak Robotics Flink Netskope Forerunner Ventures Location: San Francisco, California, United States About: VC firm investing in transformative B2C & B2B companies defining a new generation of business, with an eye on the consumer. Investment Stages: Seed, Series A, Series B, Growth Popular Investments: Curated Humane Clay Bolt Location: San Francisco, California, United States About: Bolt is a pre-seed and seed-stage venture firm focused on investing at the intersection of the digital and physical worlds. Thesis: Investing at the intersection of the digital and physical worlds Investment Stages: Pre-Seed, Seed Popular Investments: Droplette Point One Navigation Nautilus Biotech Menara Ventures Location: Tel Aviv, Israel About: A publicly traded VC investing in early-stage Digital Transformation startups. Investment Stages: Pre-Seed, Seed, Series A Popular Investments: Matics Pairzon Revuze Leo Maveron Location: San Francisco, California, United States About: Maveron funds seed and Series A companies that empower consumers to live on their terms. Based in SF and Seattle and invest coast-to-coast. Thesis: Maveron funds seed and Series A companies that empower consumers to live on their terms. Based in SF and Seattle and invest coast-to-coast. Investment Stages: Seed, Series A, Series B Popular Investments: BookClub Daring Foods Thirty Madison Felix Capital Location: London, England, United Kingdom About: We are a venture capital firm for the creative class, operating at the intersection of technology and creativity. We focus on digital lifestyle, investing in consumer brands and related enabling-technologies. Our mission is to be a partner of choice for entrepreneurs with big ideas, and help them build strong brands that stand out and have a positive impact on the world. Investment Stages: Both early and growth stages Popular Investments: Leocare Rally Mirakl Andreessen Horowitz Location: Menlo Park, California, United States About: Andreessen Horowitz was established in June 2009 by entrepreneurs and engineers Marc Andreessen and Ben Horowitz, based on their vision for a new, modern VC firm designed to support today’s entrepreneurs. Andreessen and Horowitz have a track record of investing in, building and scaling highly successful businesses. Thesis: Historically, new models of computing have tended to emerge every 10–15 years: mainframes in the 60s, PCs in the late 70s, the internet in the early 90s, and smartphones in the late 2000s. Each computing model enabled new classes of applications that built on the unique strengths of the platform. For example, smartphones were the first truly personal computers with built-in sensors like GPS and high-resolution cameras. Applications like Instagram, Snapchat, and Uber/Lyft took advantage of these unique capabilities and are now used by billions of people. Investment Stages: Pre-Seed, Seed, Series A, Series B, Growth Popular Investments: Merit Envoy Wonderschool 7 Percent Ventures Location: London, England, United Kingdom About: Early stage tech investing in UK, EU & US. Seeking the most ambitious founders with deeptech or transformative moonshot ideas to change the world for the better. Thesis: We invest in early stage tech startups which represent billion dollar opportunities. Investment Stages: Pre-Seed, Seed, Series A, Series B, Growth Popular Investments: Dent Reality Breeze, Humanity Koru Kids Flow Capital Location: Toronto, Ontario, Canada About: Flow Capital provides founder-friendly growth capital for high-growth companies. Thesis: Providing venture debt and revenue-based financing for asset-light, high-growth businesses. Investment Stages: Series A, Series B, Series C, Alt. VC, Growth Popular Investments: Ask.Vet Kovo HealthTech Corporation Everwash Quadia Location: Geneva Paris, Switzerland About: Founded in 2010, Quadia specializes in direct impact investments, though equity, debt and funds. In line with its mission «we finance the solutions for a regenerative economy», Quadia targets companies which have positioned their business model and strategic development on products and services that contribute to a regenerative economy. These transformative companies operate in the areas of sustainable food, circular products & materials, and clean energy.. An internal impact management methodology is implemented by Quadia in collaboration with each portfolio company, allowing it to go beyond simple measurement of impact, promoting an environmental and social transition among all its stakeholders. Since its creation, Quadia has financed over 45 companies, projects and investment funds for the equivalent of EUR 220 million. Investment Stages: Seed, Series A, Series B, Series C, Growth Popular Investments: Hungry Harvest The Renewal Workshop Dott. CETIH SuperAngel.Fund Location: New York City, New York, United States About: SuperAngel.Fund is an early stage fund that invests in Consumer, PropTech & Future of Work. The fund is led by Ben Zises who was the first investor and founding advisor to quip, Caraway & Arber, before each had its name. The fund launched on January 1, 2021 and currently has more than 100 investors. To date, I’ve invested over $6m into 50+ companies, including my angel, syndicate and fund investments. Thesis: Consumer (CPG, eCommerce infrastructure), PropTech & Future of Work. Investment Stages: Pre-Seed, Seed, Series A, Series B, Growth Popular Investments: Hurry Haus Caraway Related Resource: 12 New York City Angel Investors to Maximize Your Funding Potential CRV Location: Palo Alto, California, United States About: Charles River Ventures is one of the oldest and most successful venture capital firms. Companies like Cascade, CIENA, Chipcom, NetGenesis, Parametric Technology, Sonus, Speechworks, Stratus Computer, Sybase, Vignette and dozens more have gone from idea to reality with the financial, managerial and visionary backing of CRV. The firm’s investment returns are consistently among the highest of venture capital. Thesis: We are an equal partnership – figuratively and economically. Investment Stages: Seed, Series A, Series B, Growth Popular Investments: Fractional Cord Cradlewise Cowboy Ventures Location: Palo Alto, California, United States About: Cowboy Ventures is a seed-stage focused fund investing in digital startups. Thesis: We seek to back exceptional founders who are building products that “re-imagine” work and personal life in large and growing markets – we call it “Life 2.0″ Investment Stages: Seed, Series A, Series B Popular Investments: Drata Mon Ami Hone Craft Ventures Location: San Francisco, California, United States About: Craft Ventures is an early-stage venture fund specializing in the craft of building great companies. Thesis: We invest in outstanding teams that are creating market-defining products. Investment Stages: Seed, Series A, Series B Popular Investments: Trusted SUPERPLASTIC Voiceflow Creandum Location: Stockholm, Stockholms Lan, United States About: Creandum is a leading European early-stage venture capital firm investing in innovative and fast-growing technology companies. Thesis: We are a venture capital advisory firm powering innovation from Stockholm, Berlin, and San Francisco. Investment Stages: Pre-Seed, Seed, Series A, Series B, Growth Popular Investments: Lokalise Cake Pleo Craft Docs To learn more about Lightspeed Venture Partners, check out their Visible Connect Profile here. Start Your Next Round with Visible We believe great outcomes happen when founders forge relationships with investors and potential investors. We created our Connect Investor Database to help you in the first step of this journey. Instead of wasting time trying to figure out investor fit and profile for their given stage and industry, we created filters allowing you to find VC’s and accelerators who are looking to invest in companies like you. Check out all our D2C investors here and e-commerce here. After learning more about them with the profile information and resources given you can reach out to them with a tailored email. To help craft that first email check out 5 Strategies for Cold Emailing Potential Investors and How to Cold Email Investors: A Video by Michael Seibel of YC. After finding the right Investor you can create a personalized investor database with Visible. Combine qualified investors from Visible Connect with your own investor lists to share targeted Updates, decks, and dashboards. Start your free trial here. Other Helpful D2C Resources Billion-Dollar Brand Club Get all the strategies and insights you need to take your brand direct to consumer in Shopify’s The Direct to Consumer Guide. ProfitWell’s Direct To Consumer Statistics & Trends to Grow Your DTC Business Twitter Threads about #dtc + @DTCNewsletter Sharma Brands is a firm that invests, advises, and operates to build brands.

Simple Agreement for Future Equity (SAFE) is a financing tool for startups, offering a simpler, more flexible alternative to traditional equity or debt financing. Crucial in the startup ecosystem, SAFE agreements streamline the fundraising process, particularly for early-stage companies. They allow investors to convert their investment into equity at a later financing round, typically at a discounted price. This tool is significant in the startup landscape for its simplicity, efficiency, and founder-friendly nature, making it highly popular among early-stage startups. This guide will explore SAFE's definition, its role in early-stage funding, components like valuation caps and discounts, benefits for startups and investors, and alternatives to SAFE financing. The world of startup financing has been revolutionized by the Simple Agreement for Future Equity (SAFE), an innovative tool designed to simplify and streamline the fundraising process for early-stage companies. SAFE agreements, created by Y Combinator in 2013, offer startups a more accessible and founder-friendly alternative to traditional equity or debt financing methods. Related resource: Investor Agreement Template for Startup Founders Understanding SAFE Agreements Definition and Origins A Simple Agreement for Future Equity (SAFE) is a financing instrument used by startups to raise capital without immediate equity exchange or debt. Developed by Y Combinator in 2013, SAFE agreements provide a more straightforward and flexible approach than traditional equity or debt financing and it was created as an alternative to the more complex convertible notes. SAFEs are a contractual agreement between a startup and an investor, where the investment is converted into equity at a future financing round, usually at a discounted rate or with a valuation cap. This innovation emerged from the need to streamline startup investments, minimizing the legal complexity and costs associated with traditional methods. A Simple Agreement for Future Equity (SAFE) is an innovative financing instrument utilized by startups to secure capital without an immediate exchange of equity or debt. Conceived by Y Combinator in 2013, SAFE agreements offer startups a more straightforward and adaptable approach in contrast to the intricacies of traditional equity or debt financing, providing an alternative to the complexities of convertible notes. Key Differences from Traditional Equity or Debt Financing SAFE agreements differ significantly from traditional equity and debt financing. Unlike equity financing, where investors immediately receive company shares, SAFE does not involve immediate stock issuance. This means there's no immediate equity dilution or valuation requirement. In contrast to debt financing, SAFE is not a loan; it doesn't accrue interest and lacks a maturity date, reducing the financial burden on the startup. These differences make SAFE particularly attractive to startups looking for a less complicated and more flexible financing option. Role in Early-Stage Startup Funding SAFE plays a critical role in early-stage startup funding. Its simplicity and flexibility make it an ideal tool for startups that are too young for a clear valuation but need funding to grow. By deferring valuation to a later stage, it allows startups to focus on growth rather than complex financial negotiations. Additionally, the investor-friendly nature of SAFE, such as potential for future equity at a discounted rate, makes it appealing to investors interested in high-risk, high-reward opportunities typical of early-stage ventures. Components of a SAFE Agreement Standard Terms Breakdown A SAFE agreement typically includes several key terms. The most crucial are the amount of the investment and the conditions under which it converts to equity. Other standard terms include the valuation cap, which sets a maximum company valuation for the conversion of SAFE to equity, and the discount rate, offering investors a reduced price compared to later investors. Additionally, a SAFE may specify whether it includes 'participation rights', giving investors the option to invest in future rounds to maintain their ownership percentage. Valuation Caps, Discount Rates, and Conversion Mechanisms Valuation Cap: This is the maximum valuation at which the investment can convert into equity. It protects investors from dilution in high-valuation future rounds, ensuring they receive more shares for their investment. Discount Rate: It provides investors a percentage discount on the price per share compared to the next financing round. This reward compensates for the early risk taken by the investors. Conversion Mechanisms: Conversion typically occurs during a priced equity financing round, a sale of the company, or an IPO. The terms dictate how the SAFE investment converts into equity - either at the valuation cap or the discounted price, whichever is more favorable to the investor. Related resource: Everything You Should Know About Diluting Shares Impact on Founders and Investors For founders, SAFEs offer a quick and straightforward way to secure funding without immediately diluting equity or establishing a company valuation. This flexibility allows founders to focus on growing the company with less financial and administrative burden. However, they must be mindful of the potential future equity given away, especially when multiple SAFEs are used. For investors, SAFEs provide a simpler alternative to convertible notes, with the potential for high returns if the company succeeds. The valuation cap and discount rate can significantly increase the value of their investment in a successful startup. However, there's a risk as SAFEs don’t guarantee returns and don’t provide immediate ownership or control over the company. Benefits of using SAFE for startups After understanding the key components of SAFE agreements and how they operate, it's essential to explore the numerous benefits they offer to startups. SAFE agreements are not just a funding tool but a strategic choice for early-stage companies navigating the complex world of startup financing. 1. Faster and Easier Fundraising Reduced Complexity and Legal Costs One of the primary benefits of using SAFE agreements for startups is the reduction in complexity and associated legal costs. Unlike traditional equity agreements, which often involve lengthy negotiations and extensive legal documentation, SAFEs are designed to be straightforward and concise. This simplicity not only accelerates the fundraising process but also significantly lowers the legal fees for both startups and investors. SAFE agreements are meant to be simple, standard, and fair for all parties involved, thereby reducing the need for extensive and expensive legal counsel. Related resource: SAFE Fundraising: When to Consider & Benefits No Need for Valuation Perhaps the most significant advantage of SAFEs for early-stage startups is the deferral of valuation negotiations. Traditional funding methods typically require a startup to set a valuation, which can be challenging and contentious, especially for early-stage companies with limited operational history. SAFEs circumvent this hurdle by postponing the valuation determination until a later funding round, usually when more information is available to accurately assess the company's worth. This aspect allows startups to secure funding more quickly, focusing on growth rather than getting entangled in complex and potentially contentious valuation discussions. 2. Flexibility and Investor-Friendliness Flexibility for Future Rounds SAFEs stand out for their adaptability, which is crucial in the dynamic environment of startup financing. They offer the flexibility to tailor terms such as discount rates and valuation caps to suit different investor preferences and anticipate various future funding scenarios. This flexibility is particularly beneficial for startups that may undergo several rounds of funding, each with unique conditions and requirements. As noted in resources, this adaptability makes SAFEs a versatile tool, capable of evolving with the company's funding needs. Non-dilutive Funding A significant advantage of SAFEs is their non-dilutive nature at the time of investment. Unlike immediate equity exchanges in traditional financing, SAFEs convert to equity only in a subsequent funding round. This feature means that the current ownership of existing shareholders remains undiluted until that point. For founders, this is crucial as it allows them to retain more control over their company in the early stages, as highlighted by startup-focused platforms like SeedInvest. Investor-Friendly Terms SAFEs often incorporate terms that are attractive to investors, making them a compelling option for those looking to invest in startups. Pro-rata rights, for instance, allow investors to maintain their percentage of ownership in future financing rounds. Valuation caps, another common feature, offer investors protection against overvaluation in future rounds. These investor-friendly provisions, as explained by Y Combinator, ensure that SAFEs are not only beneficial for startups but also provide fair and appealing terms for investors. 3. Aligned Incentives Shared Success One of the key advantages of SAFE agreements is the alignment of incentives between investors and founders, which is foundational for a successful startup journey. As both parties stand to benefit from an increase in the company's valuation at the time of future equity rounds, there is a mutual interest in the company's growth and success. This alignment, as discussed in resources from Y Combinator, creates a partnership dynamic where both investors and founders are equally motivated to increase the company's value, ensuring that their interests are in sync. Motivation for Growth SAFEs serve as a powerful motivational tool for founders. Since the conversion terms of SAFEs are typically more favorable at higher valuations, founders are incentivized to drive their company toward substantial growth and a successful exit. This motivation aligns perfectly with the startup's objective of maximizing value, as highlighted by startup financing experts. With SAFEs, the potential future rewards for founders increase with the company's valuation, encouraging them to pursue ambitious growth strategies and operational excellence. 4. Streamlined Process No Interest or Maturity Dates SAFEs offer a streamlined and less burdensome process for startups, primarily due to their lack of interest rates and fixed maturity dates. Traditional debt instruments typically accrue interest over time and have a set date by which the loan must be repaid or converted. In contrast, as outlined in resources like SeedInvest, SAFEs eliminate these complexities. This lack of interest and maturity dates simplifies the investment process, freeing startups from the pressures and administrative challenges associated with regular debt servicing or renegotiation at maturity. No Debt Obligations Another significant advantage of SAFEs is that they are not debt instruments. This distinction means that in the event of a startup's failure, there is no obligation to repay the investors, as would be the case with traditional loans. This feature, highlighted by experts at Y Combinator and other startup-focused platforms, significantly reduces the financial risk for founders. By not carrying debt on their balance sheets, startups can operate with more financial freedom and less stress, focusing their resources on growth and development rather than on managing debt repayments. 5. Early-Stage Suitability Ideal for Early-Stage Startups SAFEs are notably beneficial for early-stage startups, primarily due to their adaptability and minimal prerequisites. Early-stage companies often lack extensive financial history, making it challenging to secure traditional equity financing. As Y Combinator points out, these agreements are tailor-made for such companies. They provide a viable funding option without the need for a lengthy track record or established market presence, thus bridging the gap between nascent operations and potential investors. Minimal Financials Required Another advantage of SAFEs is the minimal financial documentation required. Unlike traditional financing methods that may demand detailed financial projections and comprehensive business plans, SAFEs operate with far less stringent requirements. This aspect, as highlighted by startup financing experts, makes SAFEs particularly accessible for early-stage companies that may not have the resources or data to produce extensive financial documentation. It allows startups to focus on growth and development rather than on preparing intricate financial models. 6. Attractive for Investors Potential for High Returns For investors, SAFEs represent an opportunity for substantial returns, especially if the startup experiences a successful exit. This investment model offers the potential for significant returns on investment, contingent upon the startup's future success. The prospect of acquiring equity at a lower price point than future investors makes SAFEs an attractive proposition for those looking to invest in high-potential startups. Flexibility and Potential Discounts SAFEs also provide investors with flexibility and the prospect of discounts on future equity. Investors can negotiate terms such as valuation caps and discount rates. This flexibility ensures that investors can tailor the terms of their investment to suit their risk profiles and investment strategies. The potential discounts on future equity rounds further enhance the attractiveness of SAFEs, providing investors with a strategic advantage in future financing scenarios. Alternatives to SAFE While SAFEs are a popular choice for startup financing, it's important for founders to consider other available options. Each alternative, from traditional equity financing to convertible notes and crowdfunding, offers unique benefits and fits different startup needs. Related resource: The Startup’s Guide to Investor Agreements: Building Blocks of VC Funding Traditional Equity Financing Pros: Provides immediate capital injection, can offer higher valuations for established companies, and gives investors greater ownership and control. Cons: Complex and time-consuming process, requires detailed financial projections and legal documents, can be dilutive for founders and early investors. Convertible Notes Pros: Simpler and faster than traditional equity, offers lower valuation cap flexibility, and can convert to equity automatically upon certain events. Cons: May not be as attractive to some investors, can be dilutive for founders depending on conversion terms, and often includes interest accrual. Debt Financing Pros: Can be secured quickly and with minimal paperwork, doesn't dilute company ownership, and provides fixed interest payments. Cons: Requires repayment with interest, can burden the company with additional debt, and may not be ideal for high-growth startups. Revenue-Based Financing Pros: Provides funding based on future revenue, aligns investor returns with company performance, and doesn't involve immediate dilution. Cons: May not be suitable for companies with unpredictable revenue streams, can be expensive due to higher interest rates, and can give investors control over certain financial decisions. Crowdfunding Pros: Raises capital from a large pool of individual investors, generates marketing buzz, and builds community around the company. Cons: May be challenging to reach fundraising goals, can be time-consuming and require significant effort, and offers limited investor oversight and control. Grants and Public Funding Pros: Non-dilutive funding source, ideal for social impact or research-oriented ventures, and offers access to valuable resources and mentorship. Cons: Highly competitive and challenging to secure, often comes with specific eligibility requirements and restrictions, and may not provide ongoing financial support. Learn more about SAFE & Fundraising with Visible This guide has outlined the essential aspects of SAFE agreements, highlighting their role in simplifying fundraising and aligning investor-founder interests, especially for early-stage startups. However, navigating the intricacies of startup financing goes beyond understanding SAFEs. This is where Visible comes in. Visible offers a suite of tools designed to assist founders in managing investor relations, tracking key metrics, and streamlining communication with stakeholders. For more insights into your fundraising efforts, Visible is the go-to platform. Raise capital, update investors, and engage your team from a single platform. Try Visible free for 14 days. Related resource: A Complete Guide on Founders Agreements

"The most successful fund managers are going to be the ones who are really authentic to what is important to them and they make sure every attribute of their model reflects that authenticity." - Gale Wilkinson About the Webinar Markdowns and lack of LP distributions resulted in a challenging fundraising year for many VCs. The firms that did close new funds in 2023 had to put in extra work to stand out and foster confidence from new investors. Visible had the pleasure of hosting Gale Wilkinson from VITALIZE Venture Capital on Tuesday, January 30th to discuss what she learned while closing her second fund in Q4 of 2023. You can view the webinar recording below. Webinar topics This webinar was designed for people working in Venture Capital who want to learn more about the VC fundraising process. Webinar topics included: Overview of VITALIZE's fundraising process Pre-fundraising activities that made a difference How LP diligence differed between Fund I and Fund II How Gale leverages social media to build both her personal and professional brand Reviewing VITALIZE's fundraising pitch deck Advice for GP's raising in 2024 You can view the presentation deck here. Key Takeaways Expect raising your first and second fund to take 2-3 years Stay authentic to what's most important to you as a fund manager and what you're great at. Make sure every attribute of that model reflects your authenticity. Most GP decks are too long. Gale's advice --> Find out what about your story is most interesting and give enough information to make it extremely clear about who you are and what you do without going into confidential information.

Contributed equity is a cornerstone in the world of startups, serving as a vital mechanism for securing funding and fostering growth. This concept, crucial for founders and investors alike, involves the acquisition of a company's stock in exchange for capital, be it cash or other assets. Its significance lies not only in providing essential funds for a growing business but also in establishing a foundation for stakeholder relationships and future financial strategies. As we delve into the nuances of contributed equity, we aim to equip startup founders with the knowledge necessary to navigate this critical aspect of business growth effectively. What is Contributed Equity? Contributed equity represents the funds that investors infuse into a startup in exchange for ownership shares. This form of equity is distinct from other types, such as earned equity, which is typically accumulated through company profits or sweat equity. Contributed equity materializes when investors, whether angel investors, venture capitalists, or even friends and family, provide cash or other assets to a startup. In return, they receive shares, reflecting their ownership and stake in the company's future. Related resource: What is a Cap Table & Why is it Important for Your Startup Formula for Contributed Equity The formula for calculating contributed capital, also known as contributed equity, can be understood through two different approaches, depending on the financial information available and the context in which it is being calculated. Common Stock and Additional Paid-in Capital Approach: This method involves combining the value of common stock with the additional paid-in capital (APIC). Common stock is the par value of the shares issued by the company, while APIC represents the excess amount investors pay over the par value. The formula is: Contributed Capital = Common Stock + Additional Paid-in Capital For example, if a company issues shares at a par value and investors pay more than this amount, the extra paid is recorded as APIC. The sum of these two gives the total contributed capital. Total Equity and Retained Earnings Approach: Another way to calculate contributed capital is by subtracting retained earnings from the total equity of a company. The formula is: Contributed Capital (CC) = Total Equity (TE) − Retained Earnings (RE) This method is particularly useful when looking at the company's overall equity structure and understanding how much of the equity is contributed by shareholders as opposed to being generated by the company's operations. Both methods provide valuable insights into the financial contributions made by shareholders to a company's equity. The choice of method largely depends on the specific financial data available and the aspect of contributed capital that needs to be analyzed. Contributed Equity Example An example of contributed equity can be illustrated through the following scenario: Suppose a company, let's call it ABC Corp, decides to issue new shares to raise capital. ABC Corp issues 10,000 shares with a par value of $1 per share. However, investors are willing to pay $10 per share, valuing the entire issue at $100,000. In this scenario, ABC Corp will record $10,000 in its common stock account (reflecting the par value of the shares) and $90,000 in its Additional Paid-in Capital account (representing the excess over the par value). The total contributed equity, in this case, would be $100,000, which is the sum of the amounts in the common stock and Additional Paid-in Capital accounts. This example demonstrates how contributed equity is raised through the issuance of shares and how it is recorded on the company's balance sheet​​. In another illustrative example, XYZ Inc. decides to raise capital through the issuance of common and preferred stock. XYZ Inc. issues one million shares of common stock at $20 per share, resulting in $20 million being added to the company's contributed capital. In addition, the company issues 500,000 shares of preferred stock at $25 per share, amounting to $12.5 million. The total contributed capital raised from these issuances is $32.5 million. This capital is used for various company purposes like launching new products or expanding business operations. Common stockholders gain voting rights and the potential for capital appreciation, while preferred stockholders enjoy fixed dividends and priority in receiving returns​​. These examples illustrate how contributed equity is generated through the issuance of shares and how it impacts a company's financial structure. Contributed Equity Vs. Earned Equity Contributed equity and earned equity are two distinct types of equity that represent different sources of capital in a company. Contributed Equity: This is also known as paid-in capital. It refers to the capital that investors contribute to a company in exchange for shares. This type of equity can include funds raised from initial public offerings (IPOs), secondary offerings, direct listings, and the issuance of preferred shares. It also encompasses assets or reductions in liability exchanged for shares. Contributed equity is calculated as the sum of the par value of shares purchased by investors and any additional amount paid over this par value, known as additional paid-in capital​​. Earned Equity: Also known as retained earnings, this represents the portion of a company's net income that is retained rather than distributed as dividends. Earned equity accumulates over time and increases if the company retains some or all of its net income. Conversely, it decreases if the company distributes more in dividends than its net income or incurs losses. For new or low-growth companies that typically don't distribute dividends, earned capital can increase if the company is profitable​​. In summary, contributed equity reflects the investment made by owners and investors in the company, while earned equity indicates the company's profitability and the amount of profit retained in the business. Both types of equity contribute to the overall shareholder’s equity of a company​​. Types of Contributed Equity Transitioning to the various forms of contributed equity, it's important to understand the spectrum ranging from common stock to more complex instruments like warrants. Common Stock Common stock is a key component of contributed equity in a corporation, representing ownership and providing various rights to shareholders. Key features include: Voting Rights: Shareholders of common stock can vote on significant corporate decisions, such as electing the board of directors and approving corporate policies. Dividends: While not guaranteed, common stockholders may receive dividends based on the company's profitability, as decided by the board of directors. Capital Appreciation: Investors in common stock can benefit from the potential increase in stock value as the company grows. Residual Claim: In case of liquidation, common stockholders have claims to the company's assets after debts and preferred stock claims are settled. Risks: Common stock investment involves risks such as market volatility and potential loss in case of company bankruptcy. On the balance sheet, common stock is part of stockholders' equity and may include a par value, reflecting a nominal value assigned to the stock. The balance sheet also distinguishes between issued and outstanding shares, with the difference indicating treasury stock - shares reacquired but not retired by the corporation. Preferred Stock Preferred stock is a unique type of equity that combines elements of both stocks and bonds, offering benefits such as fixed dividend rates and greater claims on assets in liquidation compared to common stock. Unlike common stockholders, preferred shareholders typically don't have voting rights. The dividends of preferred stock are usually higher and prioritized over common stock dividends, providing more predictability for investors. Preferred shares are less volatile than common stocks but don't offer the same potential for capital appreciation. There are various types of preferred stock, including convertible, callable, cumulative, and participatory, each offering different benefits. Preferred stock is an appealing option for investors seeking stable dividend income but it lacks the growth potential of common stocks and the voting rights associated with them​​. Additional paid-in capital (APIC) Additional Paid-In Capital (APIC) is a crucial element in a company's financial structure, particularly in the shareholders' equity section of the balance sheet. APIC represents the amount investors pay over and above the par value of a company’s shares when they purchase them. This difference between the issue price and the par value, multiplied by the number of shares issued, constitutes the APIC. The significance of APIC in a company's financial structure is multifaceted: No Interest or Repayment Obligations: Unlike raising capital through loans or bonds, APIC does not require the company to pay interest or repay the principal amount. It is a more flexible and cost-effective way for companies to raise capital, especially for those not in a position to incur additional debt. Non-Dilution of Control: By raising capital through APIC, companies can avoid diluting the control of existing shareholders. This method involves issuing new shares to investors, but it does not necessarily affect the ownership stake or control of existing shareholders. Improved Financial Ratios: APIC can enhance a company's financial ratios, making it more attractive to future investors or lenders. A higher APIC relative to total equity can indicate financial stability and security. Increased Liquidity: APIC can enhance the liquidity of a company's shares, making them more appealing to investors. This is particularly significant for companies planning to go public or attract institutional investors. Facilitates Growth and Expansion: APIC provides companies with essential funds to explore new markets, invest in research and development, or acquire other companies. This access to capital is crucial for supporting growth and innovation. However, there are potential downsides to relying heavily on APIC. It can lead to the dilution of earnings per share and reduce earnings available to existing shareholders. In the event of a decline in the company’s share price post-APIC offering, there can be pressure from investors to enhance financial performance. Restricted Stock Units (RSUs) Restricted Stock Units (RSUs) are a form of stock-based compensation used to align employee incentives with shareholder interests. RSUs grant employees the right to receive a predetermined number of shares of the employer's stock, contingent upon meeting specific vesting requirements. These requirements can be time-based, performance-based, or event-based. Unlike stock options, RSUs don't provide the option to buy stock shares but instead promise actual shares or equivalent compensation once vested. The key differences between RSUs and direct stock grants are: Vesting Schedule: RSUs have a vesting schedule that dictates when the employee will receive the shares. This can be based on time with the company, performance metrics, or specific events like an IPO. The shares are not immediately available to the employee upon granting; they must meet the vesting criteria first. Taxation: RSUs are generally taxed as ordinary income when they vest, meaning the full value of the vested units is subject to tax at that time. In contrast, employee stock options have different tax treatments, depending on whether they are Non-Qualified Stock Options (NQSOs) or Incentive Stock Options (ISOs). Employee Incentives: RSUs provide a clear incentive for employees as they know the value of their grant and when they'll receive the shares. This clarity can be motivational, encouraging employees to contribute to the company's success over time to increase the value of their shares. Flexibility and Complexity: RSUs are generally more straightforward than stock options, which involve exercise prices and expiration dates. RSUs offer less flexibility but are easier for employees to understand in terms of value. The impact of RSUs on employee incentives is significant. They offer a stake in the company's future, potentially leading to substantial financial gain if the company performs well. This aligns the interests of the employees with those of the company and its shareholders, potentially driving better performance and retention. Stock Options Stock options, as a type of contributed equity, are an important tool used by companies to attract, motivate, and retain employees. They function by granting employees the right, but not the obligation, to purchase a specific number of company shares at a predetermined price (known as the exercise or strike price) within a set time frame. How Stock Options Work Granting of Options: Employees are granted stock options at a specific strike price, often the stock's market value on the grant date. Vesting Period: There is usually a vesting period during which the employee must remain with the company to be eligible to exercise the options. Exercising Options: After the vesting period, employees can exercise their options to purchase stock at the strike price. Potential Financial Gain: If the company's stock price increases above the strike price, employees can buy the stock at a lower price, potentially realizing a gain if they sell the shares at a higher market value. Benefits to Employees Financial Upside without Upfront Cost: Employees can benefit from the company's growth without needing to invest their own money upfront. Flexibility: They have the flexibility to exercise their options at potentially favorable times within the exercise period. Alignment with Company Success: Stock options align employees’ interests with those of the company and its shareholders, incentivizing performance and retention. Dilutive Effect on Shareholder Value Increased Share Count: When employees exercise stock options, new shares are created, increasing the total number of shares outstanding. Earnings Per Share Impact: This dilution can lower earnings per share (EPS), as the same amount of earnings is spread over a larger number of shares. Potential Impact on Stock Price: While dilution can have a negative impact on EPS and possibly the stock price, the extent of this effect depends on the number of options exercised and the company’s overall performance. Considerations for Companies Companies need to carefully manage the granting of stock options to balance the benefits of incentivizing employees and the potential dilution of existing shareholders' equity. Companies must communicate transparently with shareholders about the potential impact of stock options on dilution and earnings metrics. Warrants Warrants are a type of financial instrument that grants the holder the right, but not the obligation, to buy or sell an underlying asset, such as stocks, at a predetermined price before a specific expiration date. They are unique in their structure and offer several distinct features: Types of Warrants: There are primarily two types of warrants - call warrants and put warrants. Call warrants give the right to buy the underlying asset, while put warrants provide the right to sell it. Leverage: Warrants offer leverage, meaning a relatively small initial investment can give exposure to a larger amount of the underlying asset. This can amplify potential returns but also increase risk. Strike Price and Expiration Date: The strike price is the predetermined price at which the warrant holder can buy (call) or sell (put) the underlying asset. Warrants have a specific expiration date, after which they become worthless. The value of a warrant is influenced by the proximity of the underlying asset's price to the strike price and the time remaining until expiration. Risks and Volatility: Warrants are considered high-risk investments due to their derivative nature and sensitivity to market fluctuations. The value of warrants can change significantly with market conditions. Investment Strategies: Warrants can be used in various investment strategies, including speculation on the price movement of the underlying asset, hedging against portfolio risks, and leveraging to increase exposure. Trading and Liquidity: Warrants are traded on specific stock exchanges or financial markets, providing liquidity to investors. The market for warrants can vary, with some being more liquid than others. No Voting Rights or Shareholder Privileges: Unlike direct stock ownership, holding warrants does not confer voting rights or other shareholder privileges in the issuing company. The Role of Contributed Equity in Startup Financing Contributed equity plays a foundational role in startup financing, often serving as the initial capital that helps get a business off the ground. This form of equity involves funds raised through the issuance of shares to investors, typically without immediate repayment obligations, thus providing essential funding for early-stage companies. Comparing contributed equity with other financing options like venture capital, loans, and angel investing reveals distinct advantages and considerations for startups: Venture Capital (VC): VCs typically invest in early-stage companies, often after some proof of concept or customer base development. The investment size can range from a few million to tens of millions. VC firms often provide not just capital but also mentorship and network access. However, they usually acquire a substantial stake in the company, which can lead to significant dilution of the founders' shares. Angel Investors and Seed Funding: These investors are often the first external financiers in a startup, sometimes coming in even before the business generates revenue. Investments from angel investors or through seed funding are generally lower compared to VC, ranging from tens of thousands to a few million dollars. They typically take on higher risk for potentially higher returns and may offer valuable guidance and industry connections. Loans: Startup business loans are a debt financing option where repayment with interest is required. Unlike equity financing, loans do not result in ownership dilution. Banks may offer various products like venture debt or overdraft facilities, depending on the startup’s maturity and revenue. Loans, however, might not be as readily accessible to startups without significant assets or steady revenue streams. The choice among these options depends on the startup's stage, funding requirements, and long-term goals. Contributed equity is particularly advantageous for early-stage funding as it does not burden the company with debt repayments, allowing more flexibility for growth and innovation. This form of financing aligns investors' and founders' interests, as both parties stand to benefit from the company's success. However, it can lead to a dilution of ownership for the founders. Related resources: Corporate Venture Capital: A Strategic Partnership & Differences to Traditional VC Seed Funding for Startups 101: A Complete Guide Empower Your Startup Growth with Visible Contributed equity is an indispensable tool for startup growth, offering a flexible and strategic financing option. Founders can harness this power to build robust, investor-aligned companies. For those seeking to streamline their investor relations and reporting, Visible offers an intuitive platform to enhance transparency and foster investor confidence. Ready to empower your startup's journey? Try Visible for free for 14 days and elevate your investor engagement to the next level!

In recent years, the world of Non-Fungible Tokens (NFTs) has exploded in popularity, with various use cases and projects emerging across the digital landscape. As a result, venture capitalists (VCs) and NFT investors have started actively staking their capital in NFT projects and use cases. This trend represents a significant shift in the investment landscape, with traditional investors recognizing the potential of NFTs to revolutionize various industries and create new revenue streams. From gaming and art to real estate and collectibles, NFTs offer a unique opportunity for investors to get involved in a rapidly growing market and support innovative projects with the potential for massive returns. Also check out, 10 VC Firms Investing in Web3 Companies. NFT 101: Understanding the Basics NFTs are tokens that we can use to represent ownership of unique items. They let us tokenize things like art, collectibles, even real estate. They can only have one official owner at a time and they’re secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence. – ethereum.org NFTs are unique digital tokens that represent one-of-a-kind assets that cannot be replicated, making them valuable as digital collectibles. Though they are held in a crypto wallet and function as a type of cryptocurrency, they cannot be used to purchase goods or services. Rather, their value is derived from their uniqueness and the potential to increase in value over time. This has made NFTs an attractive investment opportunity for venture capitalists, who recognize their potential to revolutionize various industries and create new revenue streams. Examples of NFTs include digital art pieces, memes, gifs, music albums, videos, virtual real estate, and even tweets. Upon purchase, the ownership of an NFT is guaranteed through a digital signature, creating a secure and transparent investment opportunity for those looking to support innovative projects with the potential for significant returns. While NFTs may seem like digital paperwork at their core, they represent a promising future in the world of digital assets and have already captured the attention of traditional investors. Where Is the Value of an NFT Derived From? Venture capitalists are investing in NFTs for several reasons, including the potential for significant returns, the growing popularity of NFTs, and the promise of innovative use cases for the technology. Unlike traditional collectibles, the value of NFTs is derived from their one-of-a-kind nature, which is stored on the Ethereum blockchain. This allows for secure ownership verification and differentiates NFTs from standard cryptocurrency tokens like ETH. This ownership verification is crucial as it provides evidence of the rarity and scarcity of an item, giving it value in the eyes of collectors. This can range from digital art, to music, to even tweets or other unique content. With blockchain technology providing ownership verification, the value of NFTs is no longer solely dependent on the market but also on their rarity and provenance. Additionally, NFTs are enabling the possibility of shared ownership, which allows for communities of fans to own a piece of the creator’s work and incentivizes their success. As a result, venture capitalists see NFTs as a promising investment opportunity that could potentially change the way creators monetize and distribute their content, while also creating new revenue streams for investors. Also check out, Top VCs Investing in the $100 Billion Creator Economy. NFTs are gaining popularity as a way for creators to monetize their digital content and intellectual property. As more artists, musicians, and other creators adopt NFTs, the market is expected to grow, presenting new opportunities for investors. Furthermore, NFTs have the potential to revolutionize various industries by enabling secure ownership and authentication of digital assets. For example, NFTs can be used in gaming, virtual real estate, and even in the art world to prove provenance and authenticity. Another reason VCs are interested in NFTs is that they represent a new and exciting asset class, with the potential for high growth and significant returns. As such, venture capitalists are investing in NFT marketplaces, NFT-focused companies, and NFT collections. Venture capitalists are investing in NFTs in a variety of ways, including through direct investments in NFT projects and platforms, as well as by investing in companies that use NFTs as part of their business model. Many VCs are investing in NFT marketplaces that allow creators to sell their NFTs, such as OpenSea, Nifty Gateway, and SuperRare. They may also invest in NFT-focused companies that are creating new use cases for the technology, such as digital identity verification or supply chain management. Overall, venture capitalists are investing in NFTs as a way to tap into the growing popularity of the technology and to support innovative projects that have the potential for significant returns. As the market for NFTs continues to grow, it is likely that venture capitalists will continue to play a major role in shaping the future of the industry. Proven NFT Use Case Examples Pier Kicks predicts we are on our way to the “Metaverse” — a “self-sovereign financial system, an open creator economy, and a universal digital representation and ownership layer via NFTs (non-fungible tokens).” NFTs made their debut focusing mainly on art, music, and trading cards because it was the most widely adopted collectible investment items with an existing community of fans to tap into- giving them instant value. This was the start though and the beauty of NFTs is that this traditional concept can now be expanded upon in so many ways. Also check out, The Top VCs Investing in Community Driven Companies. Now fast-forward 2 years later and according to our favorite crypto newsletter, The Milk Road, it looks like the NFT use cases that are here to stay are: Rewards for Super Fans A status symbol – there is actual proof that fans made the discovery early. A membership card – a way for NFT holders to get access to exclusive perks. A way for fans to “invest in your success”- if a fan buys someone’s NFT early it can be an investment and a way to fund the project/ artist/ person. Digital Collectables Art- before NFTs art wasn’t able to be digitally collected, which is why this was probably the first and best use case so far. Branded collectibles- we’re now seeing the high fashion world take part in the craze as well and eventually in the metaverse people will be able to show off these digital assets on their avatars. Membership as an Asset “NFTs turn ‘memberships’ into tradeable assets. NFTs let you ‘invest’ in a social group, rather than just paying fees for access.” Making things like a SoHo House membership digitally transferrable. Video Game Assets “In the future, games will issue items as NFTs. Those are things you OWN. You can sell them. You can bring them into new games. You can rent them out to other players.” NFTs In the Future of Investing As the use cases for NFTs continue to expand, venture capital (VC) firms are taking notice and are increasingly interested in investing in startups and businesses that are utilizing NFTs in innovative and impactful ways. One area where VC firms are likely to invest in NFTs is in the real estate industry. As mentioned, tokenizing real-world assets is still in its early days, but once certain securities, insurance, and infrastructures are built out, the use cases could be endless. We can expect to see VC firms investing in startups that are developing blockchain-based platforms that allow for the tokenization of real estate assets, making it easier for individuals and institutions to buy and sell fractional ownership in property. VC firms are also likely to invest in startups that are utilizing NFTs in the realm of official documentation. The ability to create, transfer, and verify ownership of digital assets using NFTs has the potential to revolutionize the way that official documents are handled. For example, NFTs could be used to store and verify educational degrees, professional licenses, and other certifications. We can expect VC firms to invest in startups that are building the necessary infrastructure and platforms to enable the tokenization and verification of these types of official documents. In addition to real estate and official documentation, VC firms are likely to invest in startups that are utilizing NFTs in the sports and entertainment industries. NFTs provide a new way for fans to connect with their favorite teams, artists, and celebrities. For example, NFTs could be used to create limited-edition merchandise, exclusive content, or even fan experiences. We can expect VC firms to invest in startups that are building platforms and marketplaces that enable these types of fan experiences. Overall, as the use cases for NFTs continue to expand, we can expect to see increased interest and investment from VC firms. This investment will help to drive innovation in the space and create new opportunities for startups and businesses that are utilizing NFTs in creative and impactful ways. As a side note, for any companies looking to drop NFTs to your customers or fans, thirdweb is a platform worth exploring. Resources for Founders CoinDesk: CoinDesk is a leading media outlet covering the cryptocurrency and blockchain industry. They have a dedicated section on their website for NFT news and analysis, providing updates on the latest developments in the space. CryptoSlate: CryptoSlate is a popular cryptocurrency news and media outlet that covers NFTs and their various use cases. They have a section dedicated to NFT news and analysis, providing insights on the latest trends and developments in the industry. Crunchbase: Crunchbase is a leading platform for discovering and tracking innovative companies and investors. They have a dedicated section on their website for NFT-related companies, providing information on the top investors in the space and their investment history. NFT Accelerator: NFT Accelerator is a program that provides funding, mentorship, and resources to startups that are building NFT-based businesses. They focus on helping founders navigate the challenges of building businesses in the rapidly-evolving NFT ecosystem. OpenSea: A popular NFT marketplace that allows creators to sell and trade their NFTs. Founders can use OpenSea to sell their own NFTs and learn more about the market. SuperRare: Another NFT marketplace that focuses on digital art. SuperRare has a curated selection of high-quality NFTs and offers a unique auction system that founders may find helpful. Nifty Gateway: A user-friendly NFT marketplace that specializes in drops, where a limited number of NFTs are released at a specific time. Nifty Gateway is owned by Gemini, a cryptocurrency exchange, and has attracted high-profile creators and investors. The Block: A news and research site that covers the blockchain and cryptocurrency industry, including NFTs. Founders can use The Block to stay up to date on the latest trends and developments in the NFT space. NFT Vision Hack: A hackathon and accelerator program for NFT-focused startups. Founders can apply for the program to receive funding and support from industry experts. Metapurse: A crypto-based investment fund that focuses on NFTs and virtual real estate. Founders can learn more about NFT investing and get in touch with Metapurse for potential investment opportunities. NFT School: An educational platform that provides resources and tutorials on NFTs and blockchain technology. Founders can use NFT School to learn more about the technical and practical aspects of creating and selling NFTs. NonFungible.com: A data analytics platform that tracks the NFT market, including sales data, price trends, and project rankings. Founders can use NonFungible.com to get a better understanding of the market and the performance of their own NFT projects. Top VCs and NFT Investors Actively Investing in NFT Projects With the increasing popularity and potential of NFTs, many venture capital firms and angel investors are diving into this new field of digital ownership. These investors are actively seeking out promising NFT startups and providing the necessary funding to turn these ideas into reality. In this next section, we will highlight some of the top NFT investors who are leading the way in this emerging industry. From Silicon Valley giants to influential individual investors, these are the players shaping the future of NFTs. Animoca Brands About: Animoca Brands is a global leader in gamification and blockchain with a large portfolio of over 380 investments, and with the mission to advance digital property rights and contribute to building the open metaverse. The company and its various subsidiaries develop and publish blockchain games, traditional games, and other products, many of which are based on popular global brands including Disney, WWE, Power Rangers, MotoGP™, Formula E, and Snoop Dogg. Their mission is, “To deliver digital property rights to the world’s gamers and Internet users, thereby creating a new asset class, play-to-earn economies, and a more equitable digital framework contributing to the building of the open metaverse.” Investment Stages: Seed, Series A, Series B Recent Investments: MPCH Labs Thirdwave Revolving Games Check out Animoca Brands Visible Connect Profile, to learn more! Shima Capital About: Shima Capital is an investment fund that focuses on supporting cutting-edge blockchain startups. “Our goal has always been to invest in strong founders across all crypto verticals, a goal we achieved throughout 2022. #1 in seed-focused gaming projects #5 in CeFi, DeFi, Infrastructure, & Web3 #3 in total projects invested (actual # is closer to ~120)” Investment Stages: PreSeed and Seed Recent Investments: Magna Thirdwave Sender Check out Shima Capital’s Visible Connect Profile, to learn more! NGC Ventures About: NGC Ventures is one of the largest institutional investors of blockchain and distributed ledger technologies, and has been a key contributor to a number of leading blockchain projects. We strategically leveraging and amplifying our portfolio to help create and enhance each one’s competitive advantages. Selectively partnering with leading investment professionals and technical developers in the world. Investment Stages: Seed, Series A Recent Investments: Chainsafe Kin Insurance Fan Controlled Football Check out NGC Ventures Visible Connect Profile, to learn more! HG Ventures About: We partner with visionary entrepreneurs who are focused on bringing impactful R&D to market.At HG Ventures, we understand the dynamic landscape of your industry and bring our passion, expertise, and assets to support you as you execute your strategy for success. We invest in early stage to growth stage companies developing advanced materials and systems for transportation, infrastructure, environmental services and specialty chemicals. We provide resources spanning deep market insight, manufacturing and supply chain assistance, pilot testing of products, R&D expertise and equipment, introductions to our customers and service providers, and more. Traction metrics requirements: We will invest at the pre-revenue and pre-product stage, but we want to see the beginnings of a dedicated, full-time executive team. Investment Stages: Early to Growth Stage- Seed, Series A, Series B, Recent Investments: Circulor 6k Transcend Software Check out HG Ventures Visible Connect Profile, to learn more! Paradigm About: Paradigm primarily invests in crypto-assets and businesses from the earliest stages of idea formation through to maturity. Every once in a while, a new technology comes along that changes everything. The internet defined the past few decades of innovation. We believe crypto will define the next few decades. Paradigm is an investment firm focused on supporting the crypto/Web3 companies and protocols of tomorrow. Our approach is flexible, long term, multi-stage, and global. We often get involved at the earliest stages of formation and continue supporting our portfolio companies over time.We take a deeply hands-on approach to help projects reach their full potential, from the technical (mechanism design, smart contract security, engineering) to the operational (recruiting, regulatory strategy). Thesis: Paradigm is an investment firm focused on supporting the great crypto/Web3 companies and protocols of tomorrow. Our approach is flexible, long term, multi-stage, and global. We often get involved at the earliest stages of formation and support our portfolio with additional capital over time. Investment Stages: Seed, Series A, Series B, Series C, Growth Recent Investments: Uniswap Labs Nxyz Exponential Check out Paradigm’s Visible Connect Profile, to learn more! AU21 Capital About: AU21 Capital is a Venture Capital firm dedicated to procuring value for teams expanding the frontiers of blockchain technology. Our team brings decades of executive and operational experience at industry titans including Huobi and Galaxy Digital. Our business development and investment acumen shines through our portfolio companies, including partnerships with Astar, Axie Infinity, Injective, Marlin, Cere, Covalent, Casper labs, Serum, Fantom, Harmony, Iotex, Coin98, Polkadot, Star Atlas among many others. We also serve as trusted partners to sector-leading launchpads, and work routinely alongside top exchanges to bring products to market. Investment Stages: Seed, Series A Recent Investments: IQ Labs The Unfettered Cryption Network Check out AU21 Capital’s Visible Connect Profile, to learn more! Awesome People Ventures About: Awesome People Ventures is an early-stage fund focused on Web3. We invest in the future of work and life. We support our founders with capital, hands-on growth support, and access to an exclusive talent network. Awesome People Ventures is backed by Marc Andreessen, Chris Dixon, Multicoin, and founders of top crypto projects. Awesome People Ventures invests in a diverse set of founders, who operate with integrity and are building long-standing companies. Investment Stages:Pre-Seed, Seed Recent Investments: Treeswift Solid World DAO Jia Check out Awesome People Ventures’ Visible Connect Profile, to learn more! Exnetwork Capital About: Exnetwork Capital was founded in 2018 as a means to democratize access to opportunities to support blockchain projects. Since then, it has evolved to be a multi-faceted organization that supports not just the well-known configurations of blockchain organizations but radical ones such as anonymous and distributed teams. Investment Stages: Seed Recent Investments: Reign of Terror KlayCity Volare Finance Check out Exnetwork Capital’s Visible Connect Profile, to learn more! ConsenSys Ventures About: ConsenSys Ventures is a venture capital arm ConsenSys, a blockchain venture production studio. Investment Stages: Accelerator, Pre-Seed, Seed, Series A Recent Investments: Kiln WalletConnect Sardine Check out ConsenSys Ventures’ Visible Connect Profile, to learn more! Looking for Funding? Visible Can Help- Start Your Next Round with Visible We believe great outcomes happen when founders forge relationships with investors and potential investors. We created our Connect Investor Database to help you in the first step of this journey. Instead of wasting time trying to figure out investor fit and profile for their given stage and industry, we created filters allowing you to find VC’s and accelerators who are looking to invest in companies like you. Check out all our investors here and filter as needed. After learning more about them with the profile information and resources given you can reach out to them with a tailored email. To help craft that first email check out 5 Strategies for Cold Emailing Potential Investors and How to Cold Email Investors: A Video by Michael Seibel of YC. After finding the right Investor you can create a personalized investor database with Visible. Combine qualified investors from Visible Connect with your own investor lists to share targeted Updates, decks, and dashboards. Start your free trial here.

15 VC Firms Investing in Web3 Companies In the evolving landscape of the internet, Web3 stands out as the next significant leap, offering a decentralized, blockchain-powered framework. Coined by Ethereum's co-founder, Gavin Wood, in 2014, Web3 embodies a trustless, permissionless internet that fundamentally alters digital interactions and transactions​​. This transformational technology has captured the attention of investors globally, as it heralds a new era of internet use where users regain control over their data and digital identities. For investors, Web3 companies represent a frontier in technological innovation, combining the promise of high-growth potential with the opportunity to shape the future of online experiences. Below we highlight 15 leading VC firms that are actively investing in this exciting new sector. Related Resource: 13 Generative AI Startups to Look out for 1. a16z/ Andreessen Horowitz Location: Menlo Park, California, United States About: Andreessen Horowitz was established in June 2009 by entrepreneurs and engineers Marc Andreessen and Ben Horowitz, based on their vision for a new, modern VC firm designed to support today’s entrepreneurs. Andreessen and Horowitz have a track record of investing in, building and scaling highly successful businesses. Thesis: Historically, new models of computing have tended to emerge every 10–15 years: mainframes in the 60s, PCs in the late 70s, the internet in the early 90s, and smartphones in the late 2000s. Each computing model enabled new classes of applications that built on the unique strengths of the platform. For example, smartphones were the first truly personal computers with built-in sensors like GPS and high-resolution cameras. Applications like Instagram, Snapchat, and Uber/Lyft took advantage of these unique capabilities and are now used by billions of people. Investment Stages: Pre-Seed, Seed, Series A, Series B, Growth Recent Investments: Dapper OpenSea Ripple To learn more about a16z, check out their Visible Connect Profile. 2. Sequoia Capital Location: Menlo Park, California, United States About: Sequoia is a VC firm focused on energy, financial, enterprise, healthcare, internet, and mobile startups. Thesis: We partner early. We’re comfortable with the rough imperfection of a new venture. We help founders from day zero, when the DNA of their businesses first takes shape. Investment Stages: Seed, Series A, Series B, Growth Recent Investments: Polygon Binance Bitmain To learn more about Sequoia Capital, check out their Visible Connect Profile. 3. Tiger Global Location: New York, New York, United States About: Tiger Global Management is an investment firm that deploys capital globally in both public and private markets. Investment Stages: Pre-Seed, Seed, Series A, Series B, Growth Recent Investments: PDAX | Philippine Digital Asset Exchange Devron Novi Connect To learn more about Tiger Global, check out their Visible Connect Profile. Related Resource: 12 New York City Angel Investors to Maximize Your Funding Potential 4. Coinbase Ventures Location: San Francisco, California, United States About: Coinbase Ventures is an investment arm of Coinbase that aims to invest in early-stage cryptocurrency and blockchain startups. Thesis: At Coinbase, we’re committed to creating an open financial system for the world. We can’t do it alone, and we’re eagerly rooting for the brightest minds in the crypto ecosystem to build empowering products for everyone. We provide financing to promising early stage companies that have the teams and ideas that can move the space forward in a positive, meaningful way. Investment Stages: Pre-Seed, Seed, Series A, Series B Recent Investments: Compound BlockFi Dharma To learn more about Coinbase Ventures, check out their Visible Connect Profile. 5. Paradigm Location: San Francisco, California, United States About: Paradigm primarily invests in crypto-assets and businesses from the earliest stages of idea formation through to maturity. Thesis: Paradigm is an investment firm focused on supporting the great crypto/Web3 companies and protocols of tomorrow. Our approach is flexible, long term, multi-stage, and global. We often get involved at the earliest stages of formation and support our portfolio with additional capital over time. We take a deeply hands-on approach to help projects reach their full potential, from the technical (mechanism design, smart contract security, engineering) to the operational (recruiting, regulatory strategy). Investment Stages: Pre-Seed, Seed, Series A, Series B, Series C, Growth Recent Investments: Chainalysis matrixport Fireblocks To learn more about Paradigm, check out their Visible Connect Profile. 6. Pantera Capital Location: Menlo Park, California About: Pantera Capital is the first institutional investment firm focused exclusively on bitcoin, other digital currencies, and companies in the blockchain tech ecosystem. Investment Stages: Seed, Series A, Pre-Seed, Early Stage, Series B, Series C, Growth Recent Investments: Ancient8 Stader Labs Offchain Labs To learn more about Pantera Capital, check out their Visible Connect Profile. 7. Ribbit Capital Location: Palo Alto, California, United States About: Ribbit Capital is a Silicon Valley-based venture capital firm that invests globally in unique individuals and brands who aim to disrupt the financial services industry. Founded in 2012 by Meyer “Micky” Malka, Ribbit believes the category is profoundly under-innovated and intends to support entrepreneurs who have already launched the businesses of the future. Ribbit has raised an inaugural $100M fund that will be aimed at driving innovation in lending, payments, insurance, accounting, tax preparation and personal financial management. Ribbit targets disruptive, early stage companies that leverage technology to reimagine and reinvent what financial services can be for people and businesses. The firm will mainly focus on investments in the U.S., Canada, Brazil, the United Kingdom, Germany, Italy, Spain, South Africa and Turkey. Investment Stages: Seed, Series A, Series B, Series C, Growth Recent Investments: Genesis Digital Assets Kavak Chipper Cash To learn more about Ribbit Capital, check out their Visible Connect Profile. Related Resource: 8 Active Venture Capital Firms in Germany Related Resource: 14 Venture Capital Firms in Silicon Valley Driving Startup Growth Related Resource: 10 Venture Capital Firms in Canada Leading the Future of Innovation Related Resource: 7 Prominent Venture Capital Firms in Brazil 8. Blockchain Capital Location: San Francisco, California, United States About: Blockchain Capital is a pioneer and the premier venture capital firm investing in Blockchain enabled technology companies. Investment Stages: Seed, Series A, Series B Recent Investments: Abra Securitize Anchorage To learn more about Blockchain Capital, check out their Visible Connect Profile. 9. Digital Currency Group Location: New York City, New York, United States About: At Digital Currency Group, we build and support bitcoin and blockchain companies by leveraging our insights, network, and access to capital. Thesis: We invest in companies that are accelerating the creation and adoption of a better financial system using blockchain technology and cryptocurrency Investment Stages: Seed, Series A, Series B Recent Investments: Trust Machines Livepeer Elliptic To learn more about Digital Currency Group, check out their Visible Connect Profile. 10. DWF Labs Location: Singapore About: DWF Labs is the global digital asset market maker and multi-stage web3 investment firm, one of the world's largest high-frequency cryptocurrency trading entities, which trades spot and derivatives markets on over 60 top exchanges. Investment Stages: Early Stage Venture, Initial Coin Offering, Late Stage Venture, Non Equity Assistance, Secondary Market, Seed. Recent investments: TRON Algorand Foundation Conflux To learn more about Digital Currency Group, check out their Visible Connect Profile. 11. CMT Digital Location: Chicago, Illinois. About: CMT Digital is a venture capital firm engaging in the crypto asset and Blockchain technology industry. The firm focuses on asset trading, blockchain technology investments, and legal and policy. Investment Stages: Pre-Seed Recent investments: CFX Labs ZetaChain Trident Digital Group To learn more about Digital Currency Group, check out their Visible Connect Profile. 12. NGC Ventures Location: Singapore About: NGC Ventures invests in early stage, web 3.0 infrastructure startups and projects. We identify projects with innovative ideas to today’s blockchain problems and work with them from ideation to strategy and market adoption. Thesis: We identify projects with disruptive innovation, aiming to solve problems with solutions that are characterized by simplicity, cost affordability, speed, uniqueness and a compelling product market fit. Investment Stages: Seed, Series A Recent investments: Polybase Smooth Labs Chainsafe To learn more about Digital Currency Group, check out their Visible Connect Profile. 13. Bixin Ventures Location: Beijing, Chaoyang About: Bixin Ventures invests in early-stage infrastructure projects that cultivate and facilitate mass adoption of open finance through permissionless and decentralized networks. Thesis: Bixin Ventures’ mission is to invest in and build crucial infrastructure that enables the future of open finance through permissionless and decentralized networks. Our investment team works alongside founders to provide guidance and expertise for growth in Asia. These actions reflect our priority to transform open finance into a truly global ecosystem. Investment Stages: Pre-Seed, Seed Recent investments: Sei Earn Network zCloak Network To learn more about Digital Currency Group, check out their Visible Connect Profile. 14. Spartan Group Location: Singapore and Hong Kong. About: Founded in 2017, Spartan Group is a leading player in the Web3 space. We are one of the most active venture investors and have backed some of the leading crypto companies and networks. We are also a leader in Web3 M&A deals and capital raises, leveraging our track record of working with world-class teams, deep expertise of the crypto industry, and unparalleled network to create collective value with exceptional founders. Investment Stages: Seed Recent investments: Wind Brine Fi DFlow To learn more about Digital Currency Group, check out their Visible Connect Profile. 15. Alchemy Ventures Location: San Francisco, California About: Alchemy is a developer platform that empowers companies to build scalable and reliable decentralized applications without the hassle of managing blockchain infrastructure in-house. It is currently faster, more reliable, and more scalable than any other existing solution, and is incredibly easy to integrate! Thesis: At Alchemy, our mission is to provide developers with the fundamental building blocks they need to create the future of technology. Through Alchemy Ventures, we'll be accelerating this mission by dedicating financing and resources to the most promising teams growing the Web3 ecosystem. Investment Stages: Pre-Seed, Seed, Series A, Series B, Series C Recent investments: Acctual Bastion Unstoppable Domains To learn more about Digital Currency Group, check out their Visible Connect Profile. Web3 Resources Web3 Report Q3 2021 – ConsenSys: The DeFi data, context, NFTs, tools, and trends that defined Web3 in Summer 2021. Coinbase Cloud is announcing a community for Web3 developers. Their forum for developers is live, searchable, and indexable. The Architecture of a Web 3.0 application ​​WEB2 vs WEB3 Twitter thread on Why Web3 Matters and What’s Next in Web3 Start Your Next Round with Visible These firms are not only financing the future of the internet but are also shaping the landscape of digital innovation. As the Web3 ecosystem continues to grow, staying on top of your business and connecting is key. Combine qualified investors from Visible Connect with your own investor lists to share targeted Updates, decks, and dashboards. Check out all our web3 investors here. After finding the right Investor you can create a personalized investor database with Visible. Combine qualified investors from Visible Connect with your own investor lists to share targeted Updates, decks, and dashboards. Start your free trial here. To help craft that first email check out 5 Strategies for Cold Emailing Potential Investors and How to Cold Email Investors: A Video by Michael Seibel of YC. Related resource: 14 Gaming and Esports Investors You Should Know

“94% of business leaders surveyed say AI is critical to success.” Deloitte In the dynamic landscape of the global marketplace, AI stands as a transformative force for startups, catalyzing growth, fostering innovation, and sharpening competitive edges. This technology is not just a tool; it's a game-changer, reshaping the way startups approach their business models, customer interactions, and market strategies. AI is not just a technological advantage for startups; it's a strategic asset that propels them into new realms of possibilities, fostering a culture of continuous innovation and competitive prowess in the global market. Related resource: How AI Tools are Reshaping Venture Capital: Tools to Know The Impact of AI on Organizational Structure and Team Development In this rapidly growing era of technological innovation, AI is reshaping the landscape of startups, indicating a new paradigm in organizational structure and team dynamics. AI is not merely a tool for operational efficiency but a transformative force that will redefine what it means to start and run a company. From changing how startups will hire to introducing flatter organizational hierarchies and fostering interdisciplinary collaborations, there will be many ways in which AI will influence startups to adapt, evolve, and thrive in the competitive global arena. Startups are likely to experience significant changes in their work dynamics, organizational structure, and team compositions in the following ways: Embracing AI Expertise: The infusion of AI demands a workforce proficient in data science, machine learning, and AI ethics, steering recruitment towards specialized talent. This trend not only reshapes job roles but also fosters a culture of continuous learning and adaptation. Redefining Leadership and Management: AI-driven automation and decision-making tools are leading to leaner management layers. Decision-making becomes more data-driven and decentralized, empowering teams to operate with greater autonomy. Cultivating Interdisciplinary Collaboration: The complexity of AI applications necessitates collaboration across disciplines, blending AI expertise with industry-specific knowledge. This leads to diverse, cross-functional teams where innovation thrives at the intersection of technology and domain expertise. Adapting to Flexible Work Models: AI's facilitation of remote working tools and processes enables startups to adopt more flexible, global workforces, breaking geographical barriers and tapping into a wider talent pool. Prioritizing Ethical AI Integration: As AI becomes integral to business operations, the need for roles focusing on ethical AI usage and governance becomes crucial, ensuring responsible and fair use of technology. Related resource: Top 15 Machine Learning Startups to Watch How Can AI Best Support Startup Operations? For startups, the key is to identify which areas are most crucial for their growth and how AI can be integrated to support those areas effectively. Proper implementation and ethical considerations are also essential to ensure that AI is used responsibly and efficiently. Here are some key areas where AI can significantly support startups: Market Research and Analysis: AI can analyze vast amounts of data to identify market trends, customer preferences, and competitive landscapes. This helps startups in making data-driven decisions and understanding their market better. Customer Service and Support: AI-powered chatbots and virtual assistants can provide 24/7 customer service, answering queries, and solving basic problems. This improves customer experience and frees up human resources for more complex tasks. Product Development and Innovation: Startups can use AI for rapid prototyping, predictive analytics, and to gain insights into how users interact with their products or services. This can accelerate the development cycle and lead to more innovative solutions. Marketing and Personalization: AI can tailor marketing campaigns to individual consumer behaviors and preferences, leading to more effective and targeted marketing strategies. Operational Efficiency: AI can automate routine tasks, manage inventory, optimize logistics, and streamline operations, leading to cost savings and increased efficiency. Data Security and Fraud Detection: AI algorithms can monitor for unusual patterns indicating fraud or security breaches, providing an added layer of security to the company's data. Talent Acquisition and HR: AI can streamline the recruitment process by screening candidates, analyzing resumes, and even conducting preliminary interviews, helping startups find the right talent more efficiently. Customization and User Experience: By analyzing user data, AI can help customize user experiences, making products or services more appealing and user-friendly. Networking and Collaboration: AI can suggest potential partnerships, identify networking opportunities, and even assist in collaborative projects by managing and analyzing large datasets. Below we’ll dive deeper into some of these areas and the existing solutions that can help assist your startup in streamlining these operations and delivering better outcomes. Related resource: Emerging Giants: An Overview of 20 Promising AI Startups Market Research Using AI Tools Startups using these solutions can gain deeper market insights, identify customer preferences and behaviors, understand competitive landscapes, and make informed, data-driven decisions for their business strategies. Poll the People: Utilizes OpenAI and Chat-GPT to combine human intelligence with AI, enabling data-driven decision-making through surveys and responses from over 500,000 panelists​​. SimilarWeb: Offers comprehensive insights into digital consumer behavior with advanced algorithms and machine learning. It helps in understanding website traffic, user demographics, engagement metrics, and competitive analysis for identifying industry trends and market opportunities​​. Latana: Specializes in brand performance tracking using AI and machine learning. It provides insights into brand awareness, perception, customer sentiment, and competitive positioning, using data from various sources including online surveys and social media​​. Tableau: An AI-powered data visualization and analytics tool, ideal for exploring, analyzing, and visualizing complex market research data. Its AI-driven features help uncover patterns, trends, and correlations in market data, with intuitive dashboards for effective communication of research findings​ AI Customer Service and Support Tools The tools can help with improved efficiency in handling customer queries, enhanced quality of customer interactions, faster resolution of issues, and overall better customer satisfaction. By leveraging these AI tools, startups can also reduce the workload on their human staff, allowing them to focus on more complex tasks. Uniphore: Provides a Conversational AI technology platform for delivering transformational customer service across various touchpoints. Startups can use this to improve customer interactions and automate responses​​. Gong.io: Utilizes natural language processing and machine learning to train and assist sales and customer service representatives, helping them in providing more effective customer service​​. Moveworks: Specializes in using AI to automatically resolve help desk tickets, which can significantly reduce response times and improve resolution rates​​. Observe.AI: Offers a Voice AI platform for call centers, enhancing customer calls with real-time feedback on customer sentiment and guidance for the best actions during calls​​. Amelia: Develops a Trusted AI platform that captures and transforms AI innovations, useful in creating more responsive and intelligent customer service experiences​​. Aisera: Provides an AI-driven service solution that automates operations and support for various domains like IT, HR, sales, and customer service, thus increasing efficiency and reducing manual effort​​. Dixa: Offers conversational customer engagement software, enabling real-time communication between brands and customers, enhancing the overall customer interaction experience​​. Glia: Creates digital-first platforms for companies to connect with customers using messaging, video, co-browsing, and AI, aiming to improve the digital customer service experience​​. Cresta: Develops an AI platform designed to improve the quality of customer services, by providing real-time assistance and information to customer service agents​​. Moogsoft: Delivers AI for IT Incident Management, automating operational tasks and helping teams become more effective in addressing customer issues​​. Marketing and Personalization AI Tools Using these tools, startups can aim for improved marketing efficiency, enhanced audience engagement, and better brand positioning. Jasper.ai: This AI tool, utilizing GPT-3, aids in creating high-quality ad copy, emails, landing pages, and social media posts. It provides customizable templates for various content frameworks, ensuring brand-appropriate and engaging copy. Desired outcomes include improved content quality, efficiency in content creation, and better engagement with target audiences​​. Beacons AI: Offers an AI Outreach Tool for generating personalized and compelling pitch emails to brands. This simplifies the task of brand outreach, making it an efficient process for startups aiming to establish partnerships or collaborations​​. Rapidely: Uses GPT-4 technology for social media content creation. It includes features like a Monthly Calendar Generator and Carousel Maker, enhancing social media management and engagement. Startups can expect to achieve streamlined content creation and improved social media presence​​. Flick: An AI Social Media Assistant that aids in brainstorming, writing, and scheduling social media content. It helps in generating on-brand captions and ideas, managing hashtags, and scheduling posts, leading to more effective social media marketing​​. DeepBrain AI: Specializes in AI video creation, allowing the conversion of text to video with photo-realistic AI avatars. This tool can significantly reduce video production time and costs, ideal for creating engaging video content for marketing purposes​​. Brandwatch Consumer Intelligence: Provides AI-powered consumer intelligence and social media management solutions. It generates actionable insights for understanding consumer behaviors and trends, assisting startups in making data-driven marketing decisions​​. Brand24: An AI social media monitoring tool that tracks real-time feedback about a company. It helps in managing brand reputation and analyzing marketing campaign effectiveness, crucial for maintaining a positive brand image​​. GrowthBar: Utilizes GPT-3 AI for content generation, especially useful for SEO, blogging, and meta descriptions. This tool assists in creating optimized content, enhancing a startup's online visibility and search engine ranking​​. The Future AI Plays in How VCs Invest “We found that the best performance, nearly 3.5 times the industry average, would result from integrating the recommendations of the humans on our investment team and the machine-learning model. This shows what I strongly believe—that decision-making augmented by machine learning represents a major advancement for venture-capital investing.” – Veronica Wu VCs are already using AI in a variety of ways but say it’s still necessary to use human judgment when it comes to decision-making. In an interview with McKinsey Veronica Wu says, “we combined machine learning, which produces insights we would otherwise miss, with our human intuition and judgment. We have to learn to trust the data model more, but not rely on it completely. It’s really about a combination of people and tools.”. In the fast-evolving landscape of venture capital, the integration of AI and platforms like Visible is creating a synergy that significantly enhances investment strategies and operational efficiencies. This combination presents a powerful toolset for VCs, enabling smarter, data-driven decisions and streamlined processes. Here's how VCs can leverage AI, both generally and specifically in conjunction with Visible: Enhanced Due Diligence and Data Analysis: AI's ability to sift through and analyze extensive data sets enables VCs to conduct more thorough due diligence. This deep data analysis covers market trends, startup performance metrics, and competitor analysis, providing a comprehensive investment picture. Predictive Analytics for Identifying Opportunities: AI's predictive capabilities are pivotal in forecasting market trends and identifying burgeoning sectors. This foresight allows VCs to stay ahead, investing in startups with high growth potential before they become obvious choices. Optimized Portfolio Management: AI algorithms continually assess market conditions and offer insights for portfolio rebalancing. This dynamic management approach ensures that VC portfolios are aligned with changing market realities, optimizing returns. Streamlining Deal Flow Management: AI streamlines the deal flow process, efficiently sorting through potential investments. This not only saves time but also ensures that VCs focus on the most promising opportunities. Accurate Risk Assessment: AI provides sophisticated risk assessment models, evaluating potential investments against various market and economic indicators. This results in a more nuanced understanding of investment risks and potential returns. Additional Resources CBInsights: Generative AI Bible 13 Generative AI Startups to Look out for AI Meets Your Investor Updates Using AI Prompts to Write Your Next Investor Update Top VCs Investing in AI Startups Alpha Intelligence Capital Locations: San Francisco, Paris, Hong Kong, Singapore, Dubai About: Alpha Intelligence Capital (AIC) is an entrepreneurs-led, entrepreneurs-invested, family of global venture capital funds. AIC invests in deep Artificial Intelligence/Machine Learning (AI/ML) technology-based companies. To us, AI is the science of self-learning software algorithms that execute tasks otherwise typically performed by humans, or that substantially augment human intelligence. Thesis: AIC invests in deep Artificial Intelligence/Machine Learning (AI/ML) technology-based companies Investment Stages: Series A, Series B, Series C Recent Investments: Aidoc Proscia ZeroEyes Check out Alpha Intelligence Capital’s Connect Profile, to learn more! Air Street Capital About: Air Street Capital is a venture capital firm investing in AI-first technology and life science companies. We invest as early as possible and enjoy iterating through product, market and technology strategy from day 1. Thesis: AI-first technology and life science companies. Investment Stages: Pre-Seed, Seed Recent Investments: Athenian Valence Discovery V7 Labs Check out Air Street Capital’s Connect Profile, to learn more! Two Sigma Ventures Location: New York, United States About: Two Sigma Ventures invests in companies run by highly driven people with potentially world-changing ideas. Thesis: 1. Startups across all industries need to be data driven and getting really good at deriving value from data will continue to be critical 2. VCs can be way more supportive of founders. Our model is to utilize the 1700 mostly technical employees of Two Sigma Investments to assist companies with data science, engineering, recruiting, BD, etc. Investment Stages: Seed, Series A, Series B, Series C, Growth Recent Investments: Cajal Neuroscience Xilis Remote Check out Two Sigma Ventures Visible Connect Profile, to learn more! DCVC (Data Collective VC) Location: Palo Alto, California, United States About: Data Collective is a venture fund with a unique team of experienced venture capitalists, technology entrepreneurs and practicing engineers, investing together in seed and early stage Big Data and IT infrastructure companies. Investment Stages: Seed, Series A, Series B Recent Investments: Smartex Samsara Eco ZwitterCo Check out DCVC’s Visible Connect Profile, to learn more! 1984 Ventures Location: San Francisco , California, United States About: 1984 Ventures is an early-stage venture capital firm proptech, fintech, healthcare, marketplace, SaaS, e-commerce, and consumer. Thesis: Looking for companies from pre-revenue to 100k+ in MRR Investment Stages: Pre-Seed, Seed Recent Investments: Relevize Collaborative Robotics SyIndr Check out 1984 Ventures Visible Connect Profile, to learn more! Wing VC Location: Palo Alto, California, United States About: Wing is a purpose-built venture capital firm founded by two industry veterans with a different perspective on what it takes to create enduring companies. Thesis: Invest before it’s obvious, Partner for the long term, Focus on business Investment Stages: Pre-Seed, Seed, Series A Recent Investments: Deepgram Supernova HeadsUp Check out Wing VC’s Visibles Connect Profile, to learn more! Zetta Venture Partners Location: San Francisco , California, United States About: Zetta Venture Partners is the first focused fund committed to delivering exceptional returns from the high-growth analytics market. Thesis: AI & Infrastructure (B2B only) Investment Stages: Pre-Seed, Seed Recent Investments: EnsoData VideaHealth Pimloc Check out Zetta Venture Partners Visible Connect Profile, to learn more! M12 Location: Redmond, Washington, United States About: Is the new name for Microsoft Ventures; it invests in AI & machine learning, big data & analytics, business SAAS, cloud infrastructure, emerging technologies, productivity & communications, security. M12 ran a $2m competition for female founders (applications closed in September 2018) Investment Stages: Series A, Series B, Growth Recent Investments: Valence Security RapidSOS Insite AI Check out M12’s Visible Connect Profile, to learn more! True Ventures Location: Seed, Series A, Series B About: True Ventures is a Silicon Valley-based venture capital firm that invests in early-stage technology startups. Investment Stages: Seed, Series A, Series B Recent Investments: Almond Avidbots Chameleon.io Check out True Ventures Visible Connect Profile, to learn more! AME Cloud Ventures Location: California, United States About: AME Cloud Ventures invests in seed to later-stage tech companies that build infrastructure and value chains around data. Investment Stages: Seed, Series A, Series B Recent Investments: Meez Haven Kojo Check out AME Cloud Ventures Visible Connect Profile, to learn more! Greycroft Location: New York, United States About: Greycroft is a venture capital firm that focuses on technology start-ups and investments in the Internet and mobile markets. Investment Stages: Pre-Seed, Seed, Series A, Series B, Growth Recent Investments: Ostro Frame AI FrankieOne Check out Greycroft’s Visible Connect Profile, to learn more! Hyperplane Venture Capital Location: Boston, Massachusetts, United States About: Hyperplane Venture Capital is an investment firm focused on exceptional founders building machine intelligence and data companies. The company was founded by Brendan Kohler and Vivjan Myrto in 2015; and is headquartered in Boston, Massachusetts. Investment Stages: Seed, Series A, Series B Recent Investments: Relevize Givebutter Nurse-1-1 Check out Hyperplane Venture Capital’s Visible Connect Profile, to learn more! Morado Ventures Location: Palo Alto, California, United States About: Morado Ventures is focused on high-growth, seed-stage technology companies, with particular emphasis on “Data-fueled” businesses. Thesis: At Morado we invest in Passionate Entrepreneurs with unique expertise working on hard technological problems with software and hardware. Investment Stages: Pre-Seed, Seed, Series A Recent Investments: Metrist Everest Labs Headroom Check out Morado Ventures Visible Connect Profile, to learn more! Gradient Ventures Location: Mountain View, California, United States About: We help founders build transformational companies. Specialties include; Artificial Intelligence, Deep Learning, Neural Nets, Machine Learning, Data Science, Virtual Reality, Augmented Reality, Venture Capital, Startups, and Community Investment Stages: Pre-Seed, Seed, Series A Recent Investments: Payload Butter The Coterie Check out Gradient Ventures Visible Connect Profile, to learn more! Wing Location: Menlo Park, California, United States About: Wing is a purpose-built venture capital firm founded by two industry veterans with a different perspective on what it takes to create enduring companies. Thesis: Invest before it’s obvious, Partner for the long term, Focus on business Investment Stages: Seed, Series A, Series B Recent Investments: Deepgram HeadsUp Supernova Check out Wing’s Visible Connect Profile, to learn more! BootstrapLabs Location: San Francisco, California, United States About: BootstrapLabs, a leading Silicon Valley based venture capital firm focused on Applied Artificial Intelligence, and the first VC firm to focus solely on AI since 2015 – with over 30 investments in AI-first companies and today investing from the 3rd AI-focused seed fund ($115M). Investment Stages: Seed Recent Investments: Southie Autonomy Rabot Pryon Check out BootstrapLabs Visible Connect Profile, to learn more! East Ventures Location: Tokyo, Japan About: Founded in 2009, East Ventures is an early-stage sector-agnostic venture capital firm. The firm has supported more than 170 companies in the Southeast Asian region that are present across Indonesia, Singapore, Japan, Malaysia, Thailand, and Vietnam. Investment Stages: Early Stage, Growth Recent Investments: Klar Smile The Parentinc Wagely Check out East Ventures Visible Connect Profile, to learn more! Hyperplane Location: Boston, Massachusetts, United States About: Hyperplane Venture Capital is an investment firm focused on exceptional founders building machine intelligence and data companies. The company was founded by Brendan Kohler and Vivjan Myrto in 2015; and is headquartered in Boston, Massachusetts. Investment Stages: Pre-Seed, Seed Recent Investments: Relevize Nurse-1-1 Butlr Technologies Check out Hyperplane’s Visible Connect Profile, to learn more! Streamlined Ventures Location: Palo Alto, California, United States About: We are a seed-stage investment firm rooted in the belief that the founders of companies are the true heroes of entrepreneurial value creation in our society. We are passionate about working with visionary founders to help them create exceptional companies and help them capture as much of that value for themselves as possible – they deserve it! If we stay true to our beliefs and we are good at what we do, then we will benefit too. Our style of engagement with all our stakeholders focuses on low ego behavior, mutual respect and clarity of thought. We seed invest in visionary founders who are building the next generation of transformational technology companies. Investment Stages: Seed, Series A Recent Investments: Hoken Fursure Ratio Check out Streamlined Ventures Visible Connect Profile, to learn more! Looking for Funding? We can help We believe great outcomes happen when founders forge relationships with investors and potential investors. We created our Connect Investor Database to help you in the first step of this journey. Instead of wasting time trying to figure out investor fit and profile for their given stage and industry, we created filters allowing you to find VCs and accelerators who are looking to invest in companies like yours. Check out all our investors here and filter as needed. To help craft that first email check out 5 Strategies for Cold Emailing Potential Investors and How to Cold Email Investors: A Video by Michael Seibel of YC. Related Resource: All-Encompassing Startup Fundraising Guide After finding the right Investor you can create a personalized investor database with Visible. Combine qualified investors from Visible Connect with your own investor lists to share targeted Updates, decks, and dashboards. Start your free trial here. * The author generated this text in part with GPT-3, OpenAI’s large-scale language-generation model. Upon generating draft language, the author reviewed, edited, and revised the language to their own liking and takes ultimate responsibility for the content of this publication

In the intricate world of venture capital and private equity, liquidation preference is a pivotal concept that dictates financial outcomes during critical junctures like company sales or bankruptcies. Our article delves into the nuances of this key mechanism, exploring how it prioritizes investors' returns over common stockholders and its impact in various low-return scenarios. We'll guide you through the five primary types of liquidation preferences, each with distinct implications for investment returns and company dynamics. Particularly crucial for startups, understanding liquidation preferences is essential for navigating future funding and maintaining financial health. Join us as we unravel the complexities of liquidation preference, a crucial element in balancing the risk-reward equation in business finance. Liquidation Preference Defined Liquidation preference is a key term in venture capital and private equity, defining the order and magnitude of payments to investors in events like company sale or bankruptcy. This provision in preferred stock agreements prioritizes the return of capital to investors before any distribution to common stockholders. It's an essential mechanism in venture capital contracts to safeguard invested capital, especially in scenarios yielding low returns. For example, in a real-life scenario, if a company with a liquidation preference clause is sold, preferred investors are entitled to receive their investment amount before any payouts to common stockholders. This ensures that in a liquidity event such as a company sale, the downside risk to preferred investors is minimized, as they are guaranteed a return on their investment before others. However, if preferred stock converts to common stock in a qualified initial public offering (IPO), the liquidation preference often ceases to apply, aligning the interests of all shareholders​. The Importance of Liquidation Preference The importance of liquidation preference in venture capital and private equity cannot be overstated. Primarily, it provides financial security to investors by ensuring they recover their investment before any payouts to common shareholders in the event of a liquidation, such as a company sale or bankruptcy. This makes investing in high-risk ventures more attractive, as it reduces the potential losses in scenarios where the company does not perform as expected. Additionally, liquidation preference can influence company strategies and decision-making. It can impact negotiations during funding rounds, as terms can significantly affect how proceeds are divided in a sale or liquidation event. Moreover, for entrepreneurs and common shareholders, understanding liquidation preference is crucial in assessing how much control and financial benefit they retain in their company after external funding. In essence, liquidation preference is a key element that balances the risk and reward equation for both investors and company founders, making it an indispensable part of venture capital and private equity deals. Related resource: 5 Ways to Make Investor Communication Better The 5 Primary Types of Liquidation Preference As we delve deeper into liquidation preferences, it's important to understand that there isn't a one-size-fits-all approach. This financial tool comes in various forms, each with its unique characteristics and implications for investors and company founders. We will explore five primary types: Single or Multiple, Non-Participating and Participating, Participation Caps, Seniority Structures, and Dividend Preferences. Each type represents a different way of structuring payouts in liquidation events, offering distinct advantages and considerations. In the following sections, we'll break down these categories, providing clarity on how each operates and their potential impact on investment returns and company dynamics. 1.) Single or Multiple Single and Multiple liquidation preferences are two common structures used in venture capital and private equity to determine the payout order and amount to investors in a company's liquidation event. A Single liquidation preference, typically set at 1x the original investment amount, means that an investor with this preference gets paid back their full investment amount before any shareholders lower in the priority stack receive their payouts. This is the most common type of liquidation preference and is seen as a standard protective measure for investors​​. A Multiple liquidation preference, on the other hand, is less common and involves a multiple greater than 1x, such as 2x or 3x. In this scenario, an investor with, for instance, a 2x liquidation preference would be paid back double their original investment amount before any other shareholders receive anything. While it offers greater protection for the investor, high multiple liquidation preferences can become contentious in subsequent funding rounds and may negatively impact the ability of founders and employees to see a return, as these groups are pushed lower in the preference stack​​. For an example of a Single liquidation preference, consider a scenario where an investor invests $1 million for a 25% stake in a company that is later sold for $2 million. With a 1.0x Non-Participating Liquidation Preference, the investor would receive $1 million from their 1.0x preference, ensuring the recovery of their full investment. In this case, the remaining $1 million would be distributed to the common shareholders​​. An example of a Multiple liquidation preference is more complex and less common. For instance, if an investor has a 2x liquidation preference and invests the same amount in a company with the same sale price, they would be entitled to receive double their investment (i.e., $2 million) before any payouts to common shareholders. However, in this example, since the sale price is only $2 million, there would be nothing left for common shareholders after fulfilling the investor's 2x liquidation preference. This highlights how a multiple liquidation preference can significantly impact the distribution of proceeds, potentially leaving common shareholders with little to no return. 2.) Non-Participating and Participating Non-Participating Liquidation Preference allows investors to choose between receiving their initial investment back (usually at a 1x multiple) or converting their preferred shares to common shares and receiving a proportionate share of the sale proceeds. In other words, they can either get their initial investment back or participate in the profits like common shareholders, but not both. Participating Liquidation Preference, on the other hand, enables investors to receive their initial investment back (again, usually at a 1x multiple) and then also participate in the remaining distribution of proceeds as if their shares were common stock. This means they first recover their investment and then also get a share of any remaining proceeds. For example, if a company with a Non-Participating 1x Liquidation Preference is sold, and an investor's initial investment was $1 million, they would have the choice to either take back their $1 million (if the sale proceeds allow) or convert their shares to common and take their share of the total sale proceeds. In contrast, with a Participating 1x Liquidation Preference in the same scenario, the investor would first take their $1 million and then also receive a portion of the remaining proceeds as if they were a common shareholder. 3) Participation Caps Participation Caps in liquidation preference set a limit to how much preferred investors can receive in liquidation events, essentially capping their payout. This cap is usually expressed as a multiple of the original investment. For instance, in a capped participation preference scenario, an investor may have a cap set at 2x or 3x the original investment. This means they will participate in the liquidation proceeds on a pro-rata basis until their total proceeds reach this set multiple. After reaching this cap, they no longer receive additional proceeds, and the remaining funds are distributed to other shareholders. For example, suppose a venture capital firm invests $5 million in a company with a capped participating preference set at a 3x cap. If the company is later sold or liquidated, the VC's payout preference would be capped at $15 million (3 times the $5 million investment). In this scenario, the investor will first receive their $5 million preference and then share in the remaining proceeds until their total proceeds equal $20 million. After reaching this cap, the remaining funds are distributed to other shareholders, such as co-founders​​​​​​. This cap serves as a safeguard to prevent preferred shareholders from over-dominating the payout distribution, thus ensuring a fairer distribution among all shareholders, including founders and common shareholders. 4) Seniority Structures Seniority Structures in liquidation preference determine the order in which investors are paid in the event of a company's liquidation based on the seniority of their investment. This structure can vary, but generally, it prioritizes the most recent investors over earlier ones. A common form of seniority structure is Standard Seniority, where the liquidation preferences are honored in reverse order, starting with the most recent investment round. For instance, Series B investors would receive their liquidation preferences before Series A investors. Another form is Pari Passu Seniority, where all investors are treated equally regardless of their investment round, meaning they all receive a part of the liquidation proceeds proportionate to their initial investment. Lastly, there's Tiered Seniority, a hybrid model where investors are grouped within their funding rounds, and within each tier, payouts follow the pari passu model​​. An example of how seniority structures work can be illustrated as follows. Assume a company has received investments from seed investors who committed $2 million and Series A investors who committed $1 million, each with a 1x liquidation preference. If the company's assets after a sale amount to only $1 million, according to Standard Seniority, the Series A investors would receive the entire $1 million, leaving the seed investors with nothing. This example demonstrates the "last in, first out" principle, where investors who funded the business in its later stages, perhaps during more challenging times, are paid out first​. 5) Dividend Preferences Dividend Preferences refers to the rights of preferred stockholders to receive specific dividends before common stockholders. These dividends are usually set at a fixed amount or rate and are prioritized over dividends to common shareholders, especially in liquidity events. This clause ensures that preferred stockholders not only get priority in the distribution of dividends but also in the accumulation of those dividends if the underlying asset faces a liquidity event. For example, participating preferred stockholders with Dividend Preferences might be entitled to a set dividend rate, in addition to having a liquidation preference. In a scenario with a 2x liquidation preference, these stockholders would receive twice the amount of capital they initially invested in the company in the event of a liquidity event, provided there are sufficient funds to meet this requirement. Additionally, they have the right to convert their participating preferred shares into common stock if they choose to do so​​. This type of preference is significant in providing an extra layer of financial security to preferred stockholders, ensuring they receive their due dividends in addition to any capital returns in the event of a company's sale, merger, or other liquidity events. How Liquidation Preference Works As we've explored various types of liquidation preferences, it's clear that they play a critical role in shaping the outcomes for investors and company founders in liquidity events. Essentially, liquidation preference determines the order and amount in which different shareholders are paid in the event of a company sale, merger, or bankruptcy. This system prioritizes the returns for preferred shareholders, often venture capitalists, over common shareholders, such as employees and founders. The preference can be structured in multiple ways, each having distinct implications on the distribution of proceeds from a liquidation event. Understanding how these preferences work is key to grasping the dynamics of venture capital and private equity investments, as they significantly influence the financial returns for all parties involved in a company's journey. The Best Liquidation Preference For Startups Determining the best liquidation preference for startups depends on various factors including the company's stage, the nature of the investment, and the interests of both investors and founders. Generally, a simpler liquidation preference, like a 1x non-participating preference, is often considered favorable for startups. This type ensures investors get their investment back in a liquidation event, but doesn't excessively dilute the payouts to founders and other common shareholders. A 1x non-participating preference is balanced, offering protection to investors without overly penalizing common shareholders. This type of preference is vital for early-stage startups where future funding rounds might require more attractive terms to new investors, and excessive liquidation preferences can make follow-on funding difficult or unattractive. However, the "best" preference can vary. For more established startups with a clearer path to profitability or exit, different structures might be more appropriate. It's crucial for startups to consider how liquidation preferences might impact future funding and the company's overall financial health. Consulting with financial and legal experts is advisable to determine the most suitable liquidation preference for a startup's specific circumstances. Related resource: What Are Convertible Notes and Why Are They Used? Visible: The Ultimate Resource for Founders We've explored liquidation preference, a key aspect of venture capital and private equity that shapes the financial outcomes in events like company sales or bankruptcies. This mechanism ensures that investors' capital is prioritized over common stockholders, especially in low-return scenarios. We've examined the five primary types of liquidation preferences – Single or Multiple, Non-Participating and Participating, Participation Caps, Seniority Structures, and Dividend Preferences, each with its implications on investment returns and company dynamics. The choice of liquidation preference is crucial for startups, influencing future funding and overall financial health. Overall, liquidation preference is an essential tool in balancing risk and reward for investors and founders in the complex world of business finance. Let Visible help you succeed- raise capital, update investors, and engage your team from a single platform. Try Visible free for 14 days. Related resource: Navigating the World of QSBS: Tax Benefits and Eligibility Criteria Explained