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EXPLAINER

How does a venture capital firm work?

A photo of the Charles River and Cambridge, Massachusetts.
REUTERS/Jessica Rinaldi
Dave Edwards
By Dave Edwards

Founder of Sonder Scheme

Venture capitalists are paid to take risk—or at least that’s how it’s supposed to work. VCs are compensated based on the success of the companies they back, but they also make more money when they manage larger funds. In Quartz’s state of play, I explained how VC has changed in the last decade. This article covers the basics: how VC firms work, how they invest, and how they make money.

Table of contents

Who works in venture capital | How VCs invest | How VCs exit their investments | How VC firms make money | How convertible loans work | Corporate VCs and “alternative” VCs

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