A variety of financial institutions, corporations, and individuals participate in the VC industry as investors. The most significant among these are VC funds. VC funds may be described as pools of capital constituted for investing in relatively high-risk opportunities in anticipation of potentially high risk adjusted rates of return. These funds are usually committed for extended periods of time, ranging from seven to twelve years. At the end of the period the investments are liquidated and the capital is returned to the investor, with any capital appreciation thereon. Investors in these funds are usually interested in long term capital appreciation and not short-term gains or periodic yields by way of dividend or interest. Most VC funds are not listed on any exchange or do not have an alternate secondary market mechanism worth mentioning. Investments in these funds are therefore usually illiquid in the initial years. Investors in VC funds are institutional investors and high net worth individuals who have the ability and the preparedness to accept the illiquidity. VC funds are usually independent in the sense that they do not represent or subserve the strategic interests of any of the investors in these funds. Their primary objective is to produce a financial return for the investors in the fund. This last criterion is important as it helps companies who raise capital from VC funds to be sure that they can function independently, without the fear of being controlled” by another business interest group.
Managers of VC funds charge investors in the funda fixed annual fee, usually 2.50% of the capital under management. As a performance incentive fund managers also retain share of the capital gain provides an incentive to the fund 20% of the capital gain realised from the investments. The manager to maximise the value of the portfolio and aligns the interests of the fund manager with that of the investors in the fund