Fund Structure
Risk Capital
Capital invested with the understanding that it may be completely lost, accepted in exchange for the potential of outsized returns.
Risk capital is money investors can afford to lose entirely. Venture capital is the quintessential risk capital — most individual investments fail, but the winners generate returns that more than compensate. LPs allocate risk capital to VC as part of a diversified portfolio.
In Practice
The family office allocated $20M to venture — 5% of their portfolio — as risk capital. They could afford to lose it all, making them comfortable with venture's binary outcomes.
Why It Matters
Understanding risk capital helps founders identify appropriate investors. VCs investing risk capital have different expectations than lenders or strategic investors.
VC Beast Take
Risk capital is the fuel that makes innovation possible. Without people willing to lose money on crazy ideas, none of the technology we use today would exist.
Related Concepts
Further Reading
Startup Compensation: How to Evaluate an Offer Beyond Salary
A startup offer is more than salary and options. Here's a framework for evaluating total compensation, valuing equity realistically, and comparing startup offers to big tech packages.
Common Angel Investing Mistakes and How to Avoid Them
The most costly mistakes angel investors make — from insufficient diversification and ignoring terms to falling in love with founders and skipping reference checks. Plus how to avoid each one.
The Tax Benefits of Angel Investing: QSBS Explained
How Section 1202 QSBS can exclude up to $10 million in capital gains from angel investments — the requirements, holding periods, and how this tax benefit dramatically changes the return math.
How Much Should You Invest as an Angel?
The math behind angel investing allocation — portfolio sizing as a percentage of net worth, check size calculations, follow-on reserves, and why $5K checks usually don't work.
Exercise or Wait? A Guide to Startup Stock Option Decisions
Should you exercise your stock options now or wait? The answer depends on taxes, risk tolerance, and your company's trajectory. Here's a framework for making the right call.
How to Build an Angel Investing Portfolio
The math behind angel portfolio construction — why you need 20+ investments, how to size checks, allocate across sectors, spread vintage years, and maintain follow-on reserves.
Related Guides
Understanding Startup Equity and Dilution: A Complete Guide
How equity actually works, what dilution really means, and what founders take home in different exit scenarios. Real math, worked examples, no hand-waving.
How Venture Capital Works: The Complete Guide
Everything you need to understand about venture capital — how funds raise money, how deals get done, and how returns flow back to investors. The definitive primer.
VentureKit
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