Top 10 VC (Venture Capital) Terms Every Investor Needs to Know

By Ellie Pigott

1.  Limited Partner (LP)

Limited Partner (otherwise referred to as an LP), is the term for an investor who is a member of the fund. This means they have agreed to the terms of the fund, and thus are investing their money but do not have control over the management of the fund. 

2. General Partner (GP)

The General Partner is in charge of managing the money in the fund. This person is both an investor and a full-time employee of the fund. They oversee raising the capital and make the decisions where to allocate it. Although the GP does have the most say or control in a fund, in most cases they are still governed by a board which helps to approve the highest cost decisions or commitments made above a certain threshold. 

3. PortCo 

Like many terms in VC, portco is an abbreviation. Portco, otherwise known as a portfolio company, is a company that the fund has invested into. Many VCs have a portfolio page on their website where you can gain more info on the success of their portcos. If you can’t find a public portfolio of a VC you’re looking to invest in, ask if they can provide you with a few examples. 

4. Cap Call (Capital Call)

When someone agrees to be a limited partner in the fund, they agree to contribute a certain amount of money. However, this money is usually not taken all at once, but instead in (often) pre-determined increments over the life of the fund. A cap call is the term used for the announcement and collection of that predetermined amount. Because LP’s sign contracts agreeing to the terms of the fund, these cap calls can be enforced by law.  

5. Committed Capital

As mentioned in the definition of cap call, the committed capital is the amount an LP signs on to contribute to the fund. Committed Capital is the total amount the LP is contributing, and funds will almost always have a minimum amount of committed capital required to participate in the fund. 

6. IRR (Internal Rate of Return)

Projected IRR or Internal Rate of Return is an equation used to calculate how profitable an investment may be. This equation tracks both time and cash flow to determine annual growth for the investment. Since Committed Capital is called over time and not paid in all at once, IRR is typically higher with Capital Calls than if Committed Capital is paid all up front. 

7. Sidecar (SPV)

A sidecar or otherwise referred to as a special purpose vehicle, is used to raise additional capital for a PortCo with a small pool of investors. SPV’s are run by the same lead investor as the existing capital. Investors who have already invested in the existing capital through the VC fund are also eligible to contribute additional capital in the sidecar. These types of SPV’s are typically raised because the Portco has a growth need arise or because the lead investor is not covering the entirety of the raise. 

8. Carry

Carry is the term for the percentage of the profits the General Partner receives, in addition to a small management fee. The profits help the GP to cover overhead costs to help run the fund. For example, paying their team who helps identify new portcos and manage existing ones. Carry also helps incentivize good performance for the GP. Carry is typically not paid to the GP until all principal investments have been returned to the LP.  

9. Accredited Investor

To become an accredited investor, you need special designation achieved by meeting certain financial regulation criteria. There are different requirements depending on the investment, and to qualify, they may take into account your gross income, net worth, asset size, and professional experience. Being accredited means you need less protection by the SEC and it allows you to engage in investment activities not registered with financial agencies. 

10. Management Fee

A management fee is a fee charged to LPs to manage their investment in the fund. This fee is annual but is typically taken out during the cap calls. Each fund can determine their individual management rate but most charge between 2-3%. This fee helps account for operational cost and the diligence that goes into each of the investments.  

If you or someone you know is interested in raising capital or you’re interested in investing options like private equity or venture capital, reach out to us at peyton@tractioncapital.com. In addition, be sure to watch our Resources page for info regarding our potential investor events! 

Delve Health

 Delve Health on Track to Transform Clinical Trials Worldwide

Traction Capital has invested in an on-going partnership with a local Minnesota MedTech company with experience in clinical studies around the world. Delve Health reduces clinical trial costs and accelerated drug development by bringing the trials to patient homes, enabling more accurate data collection, and processing from wearables, digital health apps and sensors. The Minneapolis venture capital firm looks forward to helping the company continue their expansion.

Delve Health’s end-to-end solution combines web, mobile, SMS and wearables to make clinical trials more accessible to a broader group of patients to increase patient diversity and engagement. Ultimately, Delve Health’s technology platform improves clinical trial outcomes for pharma and medical device companies.

“We are very excited about partnering with Traction Capital. Their investment will allow us to nearly double our staff, while updating and strengthening our platform—all of which will allow us to continue to effectively help patients around the world” says Wessam Sonbol, co-founder and CEO of Delve Health. Delve Health has already supported 100+ studies and 26 registries in a variety of therapeutic areas. Their clients include medical device, pharmaceutical, and biotech manufacturers; clinical research organizations (CROs); as well as specific therapeutic area organizations.

The founders, Wessam Sonbol and Tamer Swidan, each have over 20 years of experience in healthcare and technology industries—making them extremely qualified to enter the MedTech world. With big goals on the horizon, they are looking to hire for a variety of positions, including individuals with expertise in sales, marketing, operations, and software development. Follow Delve Health as well as Traction Capital’s LinkedIn pages for more details and up-to-date information.

As they begin putting their investment to use, they plan to grow their team, expand their marketing efforts, and continue to work on product enhancements.

Key advantages of Delve Health’s solution include:

  • Access to a large, diverse patient pool
  • Reduction in patient burden and increase in patient data
  • Minimized patient dropouts

Traction Capital and Delve Health are delighted to partner in pursuit of this growth opportunity. With similar principles, Traction Capital looks forward to helping Delve Health enhance their values and achieve high growth. “The Traction Capital team is looking forward to working with Delve Health as they remain focused on growing their business and making clinical trials more accessible to a greater number of people. We believe the industry is ready to embrace Delve Health’s innovative solution to virtual and hybrid clinical trials (e.g., decentralized clinical trials (DCTs)), which is validated by their growing number of contracts with major clinics around the world. We are excited to work with Wessam and his team as we implement processes and leverage our experienced network to add value and grow the business,” says Shane Erickson, Founder and Managing Partner of Traction Capital.

 

How to Grow Your Startup During a Labor Shortage

By Ellie Pigott

In the midst of a labor shortage, seeking the right talent for your startup may seem intimidating. But you might be in luck.

People are leaving their jobs because they want something new and different, and working for a startup that shares their values could be a strong point of attraction.

Attracting good talent doesn’t always have to mean fancy offices and catered lunch. We’ll outline five key things to keep in mind when hiring during this unpredictable time.

1.     Offer Remote Work

In a post-pandemic world remote working has become very normalized. In 2022, statistics show nearly 60% of Americans work at least part time remotely. While it is important to have rapport between team members, offering optional remote is a great way to keep up with today’s changing societies.

If you haven’t yet integrated this or you’re wary of committing to fully remote, offer some in between options. Set a two or three day a week minimum for in office work and let your work force determine the rest of the week.

Even if you may think your employees prefer working in person, giving them the power to choose allows them to feel like a more valued member of your company.

However, be careful when offering this, don’t throw around promises you can’t keep. If the kind of work you’re seeking requires someone fully in person, be upfront.

2.   Develop a Strong Mission, Vision and Values

More than ever, people are seeking work that they align with, not just from a skillset perspective, but with their mission as well.

Has your company dedicated time to construct your mission statement? If so, is that mission statement somewhere potential employees can see it?

Displaying your mission statement on your website or LinkedIn is a great way to show people what you’re about when they’re considering applying. It’s important that your mission statement actually holds your values. A generic mission statement isn’t any better than not having one at all.

Take Patagonia for example, their mission is to “build the best product, cause no unnecessary harm, use business to protect nature, and not bound by convention”.

People strive to work for their company not just because they have openings in product design, but because their personal values align with that of the company’s.

By having a mission statement or core values and showcasing them in your job description, you’ll be more likely to find candidates who align with your work. This then increases the chances of them sticking around.

3.   Don’t Sacrifice Values for Convenience

When the need for labor is high it can be easy to sacrifice values for a quick and easy hire. However, this type of convenient mistake can often lead to high turnover and dissatisfaction by both the employer and the employee.

Your company’s values are at the core of what you do, if you don’t have employees that align with them it’s impossible to be confident in their ability to deliver on those values to your customers.

Remember, values are soft skills that greatly affect someone’s work but can’t be taught. On the contrary, hard skills may be more directly related to the specific position but can be learned by someone who may not be an expert.

If someone is a good fit for your company but lacks some of the hard skills in your job description, consider finding ways to incorporate that needed hands-on learning in their first month of onboarding.

4.  Include Statements to Deter People

A large contributor to the labor shortage is employees being unhappy in their jobs or employees leaving their jobs shortly after accepting due to being misled.

Oftentimes the job description does not fit the reality. To help avoid this turnover many businesses are turning to “what we’re not” statements.

This sets realistic expectations with those applying. Some companies will even go as far as to include statements like “you are not the right fit if you…”. While it may sound harsh to some, you’re saving yourself time in the interview process by weeding out people who don’t meet your company’s needs.

By including “what we’re not” statements, you’re establishing a level of trust and honesty with the applicants. You’re being upfront in ways other companies aren’t and you’re saving them time that they could use to apply for jobs they might be a better fit for.

5.   Provide More Than a Salary

Fair compensation and benefits are a must, but nowadays employees are looking for more.

Consider what additional unique advantages your company can provide. This could be strategic growth, individualized mentorship, extra certifications relevant to the role, and more.

The level at which a potential employee feels they can grow as an individual may be the deciding factor between your company and another. Being “taken care of” by an employer has an entirely new meaning than it did 20 years ago.

Your company might be their next job but it’s unlikely to be their last. They want to know your company is dedicated to their growth. And when the time comes, they’ll be prepared for whatever comes next.

The Next Step

With a toolkit of good practices in mind it’s time to start drafting your job description. Remember that transparency and honesty are both at the core of finding a great new member of your team.

By being open about your company’s values, growth opportunities and offerings, you’ll be sure to find a candidate who aligns well with your role.

If you have specific questions about hiring or how to help your startup succeed, reach out to us at peyton@tractioncapital.com.