Source - https://hbr.org/1998/11/how-venture-capital-works

TL;DR - Comprehensive and helpful review of the structure of funds, deals, and the industry, although a bit dated (1998).

Helpfulness - 5

Tags - fund structure, law, deal structure, useful diagrams

Questions addressed:

• What void does venture capital fill in capital markets?
• How do VC funds invest?
• How are deals structured?
• How are funds structured?
• What should entrepreneurs consider when interacting with VCs?

Summary:

• Venture capital firms offer funding for innovation and growth to startups that are too risky to be backed by traditional banks (and lack the material assets for collateral).
• VC funds invest in growing markets — the middle part of the classic industry “S” curve.
• Deals are structured to give VCs downside protection through preferred equity and antidilution clauses, as well as upside benefits such as investing more at a set price.
• Incentives for VC partners are aligned with their investors through profit sharing.

Follow up links:

• S curve explanation, http://analyticsexplained.com/the-s-curve-pattern-of-innovation-a-full-analysis/
• Preferred equity, https://www.upcounsel.com/preferred-equity
• Antidilution provisions, https://www.investopedia.com/terms/a/anti-dilutionprovision.asp