What is VC

VC 101

Getting fluent in the basics of VC.

This section is designed for trainees and professionals with any deep technical, scientific, clinical, leadership, or operational expertise who want to develop fluency in the fundamentals of venture capital (VC). Many transformative innovations - especially in life sciences, healthcare, and technology - rely on venture funding to reach the market. Yet, for those without prior exposure to the investment world, VC can feel like a “black box” filled with jargon, unfamiliar processes, and opaque decision-making.

We will unpack that black box. You will gain a working understanding of how VC firms operate, the lifecycle of a fund, and how investors evaluate opportunities. We will demystify common terms, explore the key players and their incentives, and walk through how capital flows from investors to startups - and ultimately to returns.

The goal is not to make you a venture capitalist overnight, but to equip you with the language, frameworks, and context to engage confidently in VC-related conversations, evaluate opportunities, and understand how your expertise fits into the investment process.

By the end of this section, you will:

• Understand the VC ecosystem and the roles of LPs, GPs, portfolio companies, and co-investors.
• Grasp the basic structure of a VC fund and the stages of the investment lifecycle.
• Recognize key funding stages, deal terms, and valuation concepts.
• Be able to read a cap table and understand dilution basics.
• Speak the “core vocabulary” of VC fluently enough to ask the right questions and contribute meaningfully in strategic discussions.

We want this section to blend plain-language explanations with relevant examples from your domain, ensuring that every concept connects directly to your world of innovation and impact.

📍START HERE a practical foundation in financial markets and investment principles so you as a life scientist | physician | clinician | operator | learner can understand the broader environment in which VC operates.

This image above shows the performance levels VC funds must hit to be worth the risk compared to other investments. In simple terms, most investors expect VC to deliver much higher returns - often 15-25%+ per year because their money is locked up for years and the odds of big wins are low.

In venture capital, the hurdle rate of return is the minimum performance a fund must deliver to be attractive compared to other asset classes - especially to its Limited Partners (LPs) who could otherwise invest in safer or more liquid options.

IRR = Internal Rate of Return: A way of measuring how fast an investment grows each year, taking into account when money goes in and when it comes back out. It takes into account both the size and timing of cash inflows and outflows associated with the investment, incorporating the concept of the time value of money. In VC, a higher IRR means investors got their money back (and then some) faster.

MOIC = Multiple on Invested Capital: A simple ratio showing how much money was made compared to how much was put in. For example, a 3.0x MOIC means every $1 invested returned $3 in total.

LPs = Limited Partners: The people or organizations that provide the money for a VC fund to invest. They’re “limited” because they don’t run the fund day-to-day —> they rely on the VC managers to make investment decisions and deliver strong returns.

Dr. Will Alaynick provides an excellent intro to answer ‘what is VC in the context of financial markets?’

1. Context of Venture Capital in the Financial World

• VC is a tiny slice of the global investment pie — ~0.26% of all invested assets, and only ~16% of that goes to healthcare & life sciences.
• Understanding the larger capital markets (equity, debt, commodities, foreign exchange) is essential because VC funding, exits, and fundraising cycles are influenced by them.
• Public equity markets matter for IPO exits; debt markets can offer growth capital without equity dilution; commodities and forex affect operating costs for globally active companies.

2. Core Investment Principles for Scientists, Physicians, Clinicians Learning VC

• Risk & Return: Life sciences are inherently high risk due to science, regulation, and long timelines - but can deliver massive returns when successful.
• Diversification & Asset Allocation: Spreading investments across subsectors, stages, and sometimes industries helps manage risk; in life sciences, diversification might mean investing in different modalities or therapeutic areas.
• Time Value of Money (TVM): A dollar today is worth more than a dollar tomorrow - especially important when life science returns can be a decade away. Understanding discount rates, interest rates, and opportunity cost is critical for evaluating investments.

3. Practical Relevance for Life Scientists | Physicians | Clinicians | Operators

• These market fundamentals aren’t abstract - they directly influence when VC invests, how much capital is available, and the hurdles portfolio companies must clear.
• Knowing these basics will make you more effective in pitching to VCs, supporting portfolio companies, or working inside a fund.

4. Interest rates and market cycles set the bar for fundraising.

When interest rates or bond yields are high, investors can get solid returns elsewhere, so VC funds must aim for even higher returns to attract capital. This makes it harder for early-stage, long-timeline life science and healthcare ventures to raise money, especially in “bear” market conditions. Timing your fundraising to favorable market conditions can make a big difference in deal terms and availability of capital.

5. Key metrics drive both VC decision-making and company valuation.

For investors, understanding and tracking key performance indicators (KPIs) such as burn rate (how quickly a company spends cash), runway (time until cash runs out), ROI (return on investment), IRR (internal rate of return), and milestone achievement rates is essential. In life sciences, hitting technical milestones (e.g., IND clearance, Phase I results) on time and within budget is as important as financial performance >> both sets of KPIs determine whether a startup gets follow-on funding or stalls.

Dr. Will Alaynick provides an in-depth intro to answer ‘what is VC for life sciences?’

1. Venture Capital is “patient risk capital” for high-potential ideas.

VC provides money to early-stage companies - often before they make any revenue - in exchange for ownership. Unlike loans, VCs don’t expect repayment if the idea fails; instead, they share in the upside if it succeeds. In life sciences, this is especially important because developing a new drug or medical device can take 10+ years and hundreds of millions of dollars before reaching patients.

2. VC has historically turned big scientific ideas into new industries.

From Genentech’s recombinant DNA work in the 1970s to Moderna’s mRNA platform and CRISPR gene-editing companies today, VC funding has repeatedly enabled scientists to move groundbreaking research out of the lab and into real-world products. This support often includes not just capital, but also help building a business team, finding strategic partners, and navigating regulations.

3. Understanding VC helps scientists cross the “Valley of Death.”

Many promising scientific discoveries stall between early research and proof that they can work in humans - too commercial for academic grants, but too risky for most investors. Knowing what milestones matter to VCs (e.g., strong preclinical data, clear product focus) can help scientists, clinicians, and operators design their projects to attract funding and survive this high-risk gap.

4. VC works on a “few big wins” model.

Venture investors expect that most companies in their portfolio will fail or deliver modest results - but a small number will succeed in a big way, making up for the losses. This means VCs are focused on high-upside opportunities and will push companies toward bold, high-impact goals that can justify the risk.

5. Scientists, Physicians, Clinicians can engage with VC in multiple roles.

You don’t have to be a startup CEO to benefit from or work in VC. Scientists, physicians, clinicians may serve as founders, scientific or clinical advisors, executives, or even as investors themselves. Understanding the basics of VC can open new career paths and help you contribute meaningfully in collaborations with venture-backed companies.