Venture Capital Firms: How a Fund Is Built, Paid, and Staffed

Venture capital looks irrational from the outside. Investors turn down profitable businesses, pay prices that look indefensible, and then decline to put more money into a company that is doing fine. None of it is irrational. All of it follows from two structural facts that this page explains first, because every interview question you will face is downstream of them.

The first fact is the clock. A venture fund is a fixed-life vehicle, conventionally around ten years, and it must eventually give its investors their money back in cash. The second is the power law. Within any venture portfolio, a small number of companies produce almost all of the value; the rest, collectively, do not matter much. Understand those two and most of the job becomes legible.

~10 years

A fund's fixed life

The clock every odd VC behaviour follows from

2%

Management fee

Paid yearly, whatever the portfolio does

20%

Carried interest

Paid only once LPs have their capital back

Majority

Share of the fund held in reserve

For follow-on into the companies already winning

What a Venture Fund Actually Is

A venture fund is not a company. It is a pool of committed capital with a defined life and two sides. On one side sit the limited partners: pension funds, endowments, funds of funds, family offices, sovereign wealth funds and, in Europe, a great deal of public money through institutions like the European Investment Fund. They commit capital but do not choose investments.

On the other sits the general partner, the investment firm itself. The GP decides what to back, and commits its own money too, conventionally a low single-digit percentage of the fund, so that the people making the decisions lose alongside the people funding them.

How the Money Works: Fees Now, Carry Much Later

There are two income streams and they behave nothing alike. Management fees are conventionally around 2% of committed capital per year, often stepping down after the investment period ends. They pay salaries, rent, legal bills and travel, and they arrive predictably from the day the fund closes — the reason a venture firm can employ anyone at all before a single exit.

Carried interest is conventionally 20% of the gains, and it arrives only after the limited partners have their capital back. In venture, that waiting period is the whole story.

The Power Law, and Why It Governs Everything

Here is the fact that separates venture from every other kind of investing: the losses are total and the winners are unbounded. When a buyout fund gets a deal wrong, it often recovers much of its capital. When a venture investment fails, the money is simply gone. But when a venture investment works, there is no ceiling.

That asymmetry forces a specific mental habit: a venture investor is not primarily asking is this likely to work? They are asking if it works, is it big enough to matter to a fund of our size?

This is why candidates fail the pitch question. Asked to name a company they would back, they choose something sensible, profitable and modest. It is a good business and the wrong answer, because it cannot return a fund.

Portfolio Construction: Reserves Are the Real Decision

Most candidates think a fund's job is picking companies. Picking is roughly half of it. The other half is deciding how to allocate follow-on capital, and it is where funds quietly distinguish themselves. Reserves are the capital held back to keep investing in existing portfolio companies at later rounds. In most venture funds, reserves are the larger half of the fund.

The reason is dilution. A seed fund that buys 10% of a company and then never invests again will hold materially less by the Series C, because each subsequent round issues new shares. Given the power law, being diluted out of your single best company is a fund-ending mistake.

Who Funds the Funds

Limited partners rarely come up in candidate preparation and frequently come up in interviews, because they shape what a fund is allowed to do. The European LP base looks different from the American one in a way that matters:

• Public institutions are unusually important. The European Investment Fund is among the largest backers of European venture, and several national institutions play the same role domestically. That capital often carries a mandate as well as a return target.
• Pension funds are underweight venture in Europe relative to the United States, which is a large part of why European funds are smaller than their American counterparts at equivalent reputation.
• Corporate and strategic LPs appear more often, particularly in deep tech and industrials, where an industrial group has a reason to see early technology.
• Family offices and founder-LPs have grown as a category, and some funds market that composition deliberately as a sourcing advantage.
• Funds of funds aggregate smaller commitments and are often the route by which a first-time manager raises at all.

Where the Jobs Actually Are, and How Hiring Works

One practical finding, checked directly across roughly twenty European and US investors: a fund's "Jobs" link is usually a portfolio board. It lists openings at the companies the fund has backed, not at the fund. The fund's own roles sit somewhere else entirely: Workable, Greenhouse, Lever, Recruitee, applytojob, Personio, SmartRecruiters, or an email address in a blog post.

They are also cyclical. Several funds run dated annual intakes, and their boards are simply empty between cycles. An empty board in the wrong month means nothing at all.

What This Means for the Job You Are Applying To

Fund economics determine the job description more directly than anything on a careers page.

• Small teams. A fund managing a few hundred million often has an investment team in single digits. There is no cohort to join.
• No on-cycle process. Buyout on-cycle exists because large funds hire predictable classes that headhunters can coordinate. A fund hiring one analyst has nothing to coordinate.
• Sourcing is the junior job. Finding and qualifying companies before anyone else is what a junior does most of the time. This is why so many applications ask you to name a company you would back: it is a direct test of whether you already do the work unpaid.
• Carry means little at junior level. It vests over years and pays only after the fund returns capital. On a ten-year clock, a junior who leaves after three years realises nothing.

How a Decision Actually Gets Made

Candidates imagine a partner deciding. In practice an investment moves through a sequence, and knowing it lets you place yourself in it during an interview.

1. Sourcing. Someone finds the company, usually a junior. This is the bulk of the junior job.
2. First call. A quick screen against the fund's thesis, stage and cheque size. Most companies end here, often for reasons that have nothing to do with quality.
3. Internal discussion. The company is raised at a team meeting. A junior is frequently the one presenting it, which is why being able to argue a position concisely matters more than being able to build a model.
4. Diligence. Customer calls, market work, technical review, references on the founders. In venture this is lighter than in buyout and more judgement-driven, because there is often little history to examine.
5. Investment committee. A memo is circulated and argued. The memo is the artefact, which is why take-home memos are such a common interview exercise: they test the thing the job actually produces.
6. Term sheet and close. Price, ownership, board composition and preferences are negotiated, then legal work follows.

Stage: What a Fund Can and Cannot Do

Stage is not a preference. It is a constraint set by fund size and ownership target working together.

A fund's ownership target is the percentage it aims to hold. Because one company may have to return the fund, that target determines cheque size, which determines which rounds it can lead. A €100M seed fund cannot lead a $40M Series B and hold a meaningful position; the arithmetic does not permit it.

How Funds Differ: Structure, Type and Size

Two funds can share a stage, a geography and a sector and behave completely differently. The distinctions worth knowing before an interview:

• Lead or follow. A fund that leads sets the price and terms and usually takes a board seat. A fund that follows takes an allocation in someone else's round. Leading requires conviction, capital and the willingness to be wrong publicly.
• Concentration. Some funds make a small number of high-conviction bets; others build wide portfolios and let the power law sort it out. Both are defensible; they demand different temperaments and produce different jobs.
• Ownership discipline. Whether the fund will walk away from a company it likes because it cannot get enough of it.
• Reserve philosophy. Whether follow-on capital is committed at entry or fought for internally each time.
• Platform. Whether the fund employs people who help portfolio companies hire, sell and market. A large platform changes the junior job, because some of what looks like an investing role is really portfolio support.
• Thesis depth. Whether the fund has a genuine, specific, falsifiable view about where value is going, or a sector list.

Thesis depth is the most useful of these in an interview. A fund with a real thesis will have written it down, and the fastest way to prepare is to read what they have published and arrive with a disagreement.

Structures You'll Meet in Europe

Most funds follow the fixed-life model. A few do not, and the difference comes up in interviews.

The Landscape by Type

European venture is not organised into neat tiers the way buyout is by fund size. It is more useful to group by what a fund can do.

Sizes and Vintages Worth Knowing

A sense of scale is worth carrying into any interview, because fund size decides almost everything else about the job.

What a Fund Is Actually Buying at Each Stage

The further left a fund sits, the less evidence exists and the more the investment is a judgement about people. This is uncomfortable for candidates arriving from banking or consulting, where the work is to reduce uncertainty rather than to price it.

At pre-seed and seed, there is usually no meaningful financial history. Revenue may be zero. Retention data does not exist because there are not enough customers to measure. What the investor is buying is a view on three things: whether the founders are unusually capable, whether the problem is real and painful, and whether the market could become large enough to matter.

At Series A, the question changes. There is now some evidence, and the job is to work out whether the growth is repeatable or whether it is the founders personally selling. A company where the founder closes every deal has revenue but not yet a business.

At Series B and beyond, the analysis starts to resemble growth equity. There are cohorts, payback periods and unit economics to examine, and the question is whether the model scales without the economics degrading.

How Funds Compete for the Deals They Want

Capital is abundant and good companies are scarce, which inverts the relationship candidates expect. For the companies a fund most wants, the fund is being chosen, not choosing. That has visible consequences:

• Speed becomes a feature. A fund that can decide in days beats one that takes six weeks, which is part of why diligence in venture is lighter than in buyout.
• Sourcing early is the real edge. Meeting a company before it raises, sometimes a year before, is worth more than winning a competitive round.
• Reputation with founders compounds. Founders ask other founders, so how a fund behaved in a portfolio company's bad quarter is priced into future deals.
• Thesis is a marketing asset. A published, specific point of view attracts the founders who agree with it and saves the fund from having to find them.
• Platform services are a pitch. Recruiting and go-to-market help is partly genuine value and partly differentiation in a crowded round.

Sourcing is the junior job, and it is not junior work. The person who finds a company a year before it raises has done the single most valuable thing the fund does.

The Bottom Line

A venture fund is a ten-year vehicle in which one company has to pay for all the others. Fees keep the lights on; carry is the real prize and arrives late, if at all. Reserves matter as much as picking. Ownership targets set cheque sizes, which set the stage a fund can play at.

Every interview question you will face is a way of testing whether you have internalised that. The candidate who pitches a safe, sensible, modest business has not. The candidate who asks how the fund allocates reserves has.

None of this requires insider access. Fund sizes, vintages, theses and portfolios are published, and the funds that run structured junior intakes publish those too. What is scarce is the willingness to read past the homepage, notice where a firm's own numbers disagree with each other, and arrive with an argument rather than an admiration.

The guides below take each fund on this site one at a time: how it is structured, what it has actually raised, who it has backed, how it hires, and what its process consists of.