What is venture capital?
Venture capital (VC) is money put into new companies, especially tech-driven startups, that do not yet make a profit but hope to grow very fast. In return, the investor gets a share of ownership in the company. There is no interest and no fixed return.
VC investors know most startups will not survive. They invest anyway, because if one company truly takes off, its gains can cover all the other losses and much more. The money usually comes back only many years later, when the company is sold or listed on the stock market.
Say three young people in Dhaka build an app that lets farmers sell straight to shops. Users are growing, but income is still below costs. A VC fund gives them Tk 5 crore in exchange for 20% of the company. If the business takes off, that 20% could be worth many times as much; if not, the whole Tk 5 crore could be lost. The story is only an example.
Why it matters to an investor
- To see what the risk really looks like: almost no one gets the “average” result here; most investments lose, and a few win enormously.
- To understand liquidity: money in private funds is often tied up for 10 years or more, with almost no market to sell in between.
- To judge a “startup investment” offer: before putting money into a friend’s startup, it helps to know that even professional VCs lose money on most deals.
- To understand the economy: a large share of new technology, jobs and businesses start with venture money.
How a VC fund works
A VC fund usually raises money from large institutions and wealthy individuals, called limited partners (LPs). It is run by professional managers who choose which startups get money. A startup raises money in stages: first “seed”, then “Series A”, “Series B” and so on. Each round issues new shares, so the earlier owners’ slice shrinks (dilution).
The managers take two kinds of payment: a management fee every year, and a share of the profits if there are any. In Bangladesh, BSEC’s Alternative Investment Rules 2015 capped a VC fund’s annual management fee at 3% of net asset value and the profit share at 20% of net annual profit. The rules have since been amended and may change again.
The gains come from a few
VC results are extremely lopsided. A study by a US venture firm of more than 21,000 financings from 2004–2013 found that about 65% did not even return the money invested, while only about 4% returned ten times or more. Nearly all of a fund’s gains come from these few.
That is why a VC spreads small amounts across many companies. An ordinary person who backs one or two startups has very little chance of catching a “big winner”, and a much higher chance of losing everything.
Source: Correlation Ventures data, via a blog post (2014)
See the numbers as a table
| Returned less than invested | 1x to 10x | 10x or more | |
|---|---|---|---|
| All deals | 65 | 31 | 4 |
Venture capital in Bangladesh
In Bangladesh, VC, private equity and impact funds operate under BSEC’s Alternative Investment Rules 2015. These funds raise money only by private placement, are not listed on the stock exchange, and are open mainly to institutions and wealthy individuals. A 2020 amendment cut the minimum investment per investor from Tk 50 lakh to Tk 10 lakh.
Investment in the country’s startups swings a lot, and almost all of it comes from abroad. By one research firm’s count, a record of nearly $415 million came in 2021 (a large part of it a single very big deal); in 2024 it fell to about $41 million, 98% of it foreign. In the first half of 2026 only about $6 million came in, 95% less than in the same period a year earlier.
Worked example
- Say a fund puts Tk 1 crore each into 10 startups, Tk 10 crore in all.
- Six shut down: nothing back. Three just about survive and are sold, returning Tk 1 crore each: Tk 3 crore in all.
- One becomes a huge success, returning 20 times: Tk 20 crore. Total back: Tk 23 crore, or 2.3 times before fees.
Result: without that one winner, Tk 10 crore would have returned only Tk 3 crore. The whole VC game depends on these few winners. The numbers are only an example.
Common mistakes
- Putting a large sum into one or two startups and thinking you have caught “the next big company”.
- Treating a startup’s “valuation” as a certain value. It is the price of the last round, not a guarantee of a sale.
- Expecting money back quickly. VC money is usually locked up for many years.
- Believing offers of “fixed monthly profit from investing in startups”. Real venture investing has no monthly or guaranteed return.
In venture capital most investments fail, and the gains come from a few huge successes, and only after many years.