A venture capital fund is a pooled investment vehicle that buys minority equity stakes in young, fast-growing private companies, expecting a few large successes to outweigh many failures. It is the vehicle through which most venture capital is invested. The fund is usually a limited partnership with a life of about ten years. The managing firm acts as general partner and selects the investments; pension funds, endowments, family offices and other institutions join as limited partners, each making a limited partner commitment that is drawn down over time through a capital call.
The manager normally charges an annual management fee of around 2% of commitments and takes carried interest, typically 20% of profits. Money is invested over the first few years in funding rounds from seed funding onwards, and is returned when holdings are sold or listed. Funds differ from growth equity and buyout funds in backing earlier, riskier companies.