foreign [Music] there's a bunch of foundational details about what funds are and how they work that you're going to want to know from the very beginning my name's Rita and I'm the head of the Venture Capital business development team here at carda and I also teach Venture Capital funds at UC Berkeley School of Law and in this first lesson we're going to start laying that foundation with some of the most important Basics over the next few minutes we'll talk about what a VC fund actually is then we'll learn how a VC fund differs from other
types of funds and we'll do a quick preview of the structure that organizes how a VC fund operates soda kick it off let's go ahead and zoom right in on that first one what exactly is a venture capital fund we'll start with a simple definition a fund is a legal entity that pools money in order to invest in assets the fund then owns those assets until it sells them and that's it real basic fund is just a little on Eddie that collects a bunch of money to invest that money in a bunch of stuff pretty
easy right longer Journey you're going to hear people say different words like Venture Capital fund inventor Capital firm and it's important to know up front those two things are not the same a VC fund is different from a VC firm these two entities work in tandem with each other but they're not the same entity so what's the difference well the VC firm is the management company that rents office space employs a bunch of analysts subscribes to financial publications and so on it's basically like when you hear the brand name of a famous VC you're talking
about the management company or the VC firm and here's the thing a successful firm May operate several different funds at one time like fun One Fund two and so on making sense so far okay so we touched on the fur now let's go back to the fund we know what a fund is right it's a pooled investment vehicle but whose money is actually getting put into that pool a fund's money comes from third party investors they put their money into the fund with the expectation that the fund's Investments are going to generate a profit by
the time the fund sells them so and we're going to do this a lot let's recap real quick you got two on any so far the firm aka the management company and the fund the firm is the company that's it's over the top and the fund is legal entity that pulls money from third-party investors now looking again at that fund drop your head around all this stuff it's it's good to know what type of legal entity the fund usually is a VC fund is typically formed as legal entity called a limited partnership and there's a
reason for that all these third-party investors are going to join the fund and contribute Capital to it right well when they do that they're going to become what we call limited partners of the fun or LPS for short so if you ever hear someone talk about the LPS of a fund that's what they're talking about the investors are limited partners contributing to a limited partnership make sense okay so now let's add another layer to it the fund is a limited partnership and this limited partnership has to be managed by someone not someone is called a
general partner or GP for short now there's a common misconception when people hear the word GP in general they usually think it's referring to a person like the person that's running the fund but the GP typically isn't a person it's a separate legal entity and that legal entity is set up to manage the fund so again let's recap you got the VC firm that sits over the top and the VC firm sets up a legal entity called the general partner or GP this GP is created to manage the fund and the fund is limited partnership
that pulls together money from a bunch of investors who are also known as limited partners or LPS it's worth noting sometimes when people are being casual they may refer to the investors that are managing the fund as the GPS of that fund that's just kind of a casual language thing we'll talk about it a little later what's important for you to know right now is the legal structure of all this stuff so when you hear GP just remember the GP is the legal entity that manages the fund still making sense okay let's keep going typically
VC firms are going to set up a new totally separate GP for each one of their funds this basically helps legally separate all the different funds from each other this separation is actually pretty important for one key Reason by lately separating each fund you're limiting the liabilities of that fund to one specific place the GP entity which Probably sounds like gibberish right so let me break it down let's pretend one of our funds gets saddled with a bunch of legal liabilities luckily for us that fund is legally isolated from all the others meaning those liabilities
generally won't run up the chain to impact the firm or any of the firm's other funds the liability is limited to just that GP entity right there let's now look back at our definition and zoom in on two special words venture capital in the next lesson we're going to dive into Venture Capital as an industry and learn a little bit about how it works so when you're ready click the button down below and let's keep learning foreign
