Venture capital funds are professionally managed funds that provide high-potential start-ups with funds in exchange for management fees and equity or shares of stock in the start-up. Venture capitalists (VCs) invest between $1 and $20 million in a start-up, but it can vary. The venture capital funds are themselves funded by wealthy investors. The venture capital funds sometimes charge about 2–4% per year as a management fee. In addition, they charge 20–25% return (sometimes more) on their investment over the course of 5 years. So if a start-up borrows $5 million from the venture fund, then they may have to pay $100,000 in management fees per year (at 2%) and then pay out approximately $13.3 million in 5 years (at 20%) for the return on the VCs investment. The management fee is a kind of coaching or consulting fee. A typical fund can have 15–20 ventures with about half- generating returns. Only a few of the businesses are hits and the hits subsidize the failures and the marginally successful ventures.
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