How do venture capital funds work?

Venture capital (VC) funds are professional investment vehicles that buy equity in startups with high growth potential. Understanding how a fund works makes it easier to understand an investor's questions and expectations.

Fund structure: LPs and GPs

• LPs (limited partners): the institutions and individuals who put money into the fund: pension funds, corporates, family offices, wealthy individuals and public funds of funds.
• GPs (general partners): the team that runs the fund. They find and assess startups, make investment decisions and support portfolio companies.

In Türkiye, venture funds are usually set up as venture capital investment funds or companies regulated by the Capital Markets Board (SPK).

The life of a fund

A fund typically has a life of around ten years:

1. Investment period (first 3–5 years): new startups are backed.
2. Follow-on period: additional money goes into the best performers in later rounds.
3. Exit period: shares are sold through acquisitions or IPOs and proceeds go to the LPs.

That is why funds prefer companies that could reach an exit within a few years.

How fund managers earn

• Management fee: an annual percentage of fund size that covers the team and operations.
• Carried interest: after LPs get their money back, a percentage of the profit goes to the managers.

Why do they look for outsized growth?

Many early-stage investments do not work out as hoped. A fund's return usually comes from a handful of big successes. So a VC asks of every deal: "Could this company return the whole fund on its own?" A large market, a scalable model and fast growth are therefore critical. See our startup valuation guide for the effect on price.

The decision process

1. Sourcing: introductions, events, platforms and direct applications
2. First meeting: team, problem, product and market
3. Deep dive: customer calls, metric analysis, competition review
4. Investment committee: a joint decision by the partners
5. Term sheet and due diligence: terms and legal, financial and technical review. See our term sheet guide.
6. Closing: agreements are signed and money is transferred

The process can take from a few weeks to a few months.

Before approaching a VC

• Pick the right fund: does its stage, sector and ticket-size focus match yours? Filter by sector and stage on our investors page.
• Look for a warm introduction: applications through a mutual contact get more attention.
• Prepare your metrics: growth, retention and unit economics. See the metrics investors look at.
• Sharpen your deck: our pitch deck guide for global investors applies to local funds too.

Conclusion

VC money is not right for every startup. For businesses that aim for steady, profitable growth rather than hypergrowth, grants, angels or revenue-funded growth may fit better. The key is choosing funding that matches your business model.