What is a VC?

What Is a VC?

A VC (Venture Capitalist) is an investor who bets on ambition before the data catches up. They fund early-stage startups in exchange for equity, helping founders build things that don’t exist yet — but should. Unlike banks, they don’t care about cash flows. They care about category-defining upside.

Let’s unpack what a VC actually does, how venture capital works, and how to think about it if you're a founder.

The Basic Definition

A venture capitalist is a professional investor managing a pool of money — called a fund — on behalf of limited partners (LPs), such as pension funds, family offices, and endowments.

They use this money to invest in startups with high growth potential, usually in exchange for equity (ownership). If one startup in the portfolio succeeds, it can return the entire fund — and then some.

What Makes VC Different From Other Capital?

Type	Risk Appetite	Returns Expected	Equity Taken	Collateral?
Bank Loan	Low	Fixed (interest)	No	Yes
Angel Investor	Medium	High	Yes	No
VC	Very High	Exponential	Yes	No
Private Equity	Medium	High	Yes	Yes (often)

Venture capitalists aren't in it for steady growth — they want nonlinear outcomes. Think: Airbnb, Stripe, Figma.

How VC Firms Operate

Venture capital firms raise capital from LPs into a fund (e.g., $100M fund). A team of partners manages that fund over a 10-year cycle:

• Years 1–3: Invest in ~25–30 startups

• Years 4–7: Support portfolio companies (follow-on funding, board work)

• Years 8–10: Harvest returns (M&A, IPO)

VCs make money in two ways:

• Management fees (usually ~2% annually)

• Carried interest (typically 20% of profits after returns exceed a threshold)

Stages of VC Funding

Each funding round corresponds to a different risk level and capital need:

Stage	Typical Raise	What VC Looks For
Pre-seed	$250K–$1M	Founding team, market insight
Seed	$1M–$3M	Early traction, product-market fit
Series A	$3M–$15M	Scaling GTM, core team expansion
Series B+	$15M–$100M+	Growth metrics, path to profitability

Redbud VC focuses on pre-seed and seed, helping founders turn early insight into momentum.

What Do VCs Actually Do?

A VC’s role isn’t just to write checks. Great ones:

• Source deals (meeting founders, tracking trends)

• Evaluate opportunities (team, market, timing)

• Negotiate terms (valuation, ownership, board rights)

• Support founders (hiring, strategy, follow-on rounds)

• Return capital to LPs

As Paul Graham might put it: VCs invest in things that look like toys now but are inevitable later.

What Founders Should Know

1. You’re selling a vision. At early stages, there’s often no product or revenue. VCs bet on your thinking, team, and insight.

2. VC money is expensive. You’ll give up equity and possibly board control — choose investors who add real value.

3. Not every startup is venture-scale. That’s okay. But VCs need massive returns because most of their investments will fail.

When Should You Raise from a VC?

• You’re building in a winner-takes-most market

• You need capital to move fast (not just survive)

• You can demonstrate early traction or compelling insight

• You want a partner to help with hiring, strategy, and access to next-round investors

FAQs

Q: What is the difference between an angel investor and a VC?A: Angels use their own money. VCs invest a pooled fund and typically have more structure (due diligence, term sheets, board seats).

Q: What’s the average VC ownership per round?A: 15–25% in pre-seed or seed. Expect dilution across rounds.

Q: Do VCs only care about growth?A: Mostly — but smart VCs look for founder clarity, speed of learning, and unfair advantages beyond just metrics.