How do VCs and Startup bank funds work?


The research around it is insanely complicated! Been reading LinkedIn posts about thousands of people not getting paid.

What is the difference between a regular bank VS a bank like Silicon Valley that funds Startups?

In: 2

A Venture Capital Fund works by getting rich people to give the VC Fund managers money to invest on their behalf. The companies VCs invest in are generally new with a chance to grow very fast and very large but have to spend a lot of money in the next few year to grow and will not make a profit for many years. VCs understand that 90% or more of the companies they invest in will return no money and will go out of business. These are highly risky investment offset by the top 1% of investments that become the next PayPal, google, Amazon or Facebook.

The difference between SVB and any other bank was it’s main clients.

Silicon Valley Bank was, basically, just a bank like any other, but it catered to the unique needs of startups, venture funded companies, and the Venture funds themselves. SVB took the cash from startups and put it into deposit accounts just like you would have a checking account at a bank. SVB loaned money to startups and VC firms like you may take out a loan from your local bank in the firm of a mortgage, car loan or a small business loan.