How It Works
Investing in venture capital has not traditionally been available to individual investors. MDVP has pioneered physician venture capital and made the exceptional financial returns historically achieved by venture investing available exclusively to its Physician Limited Partners. Many of the doctors interested in investing with M.D. Venture Partners want to learn more about the nuts and bolts of the venture capital industry so they can get a better understanding of how their dollars will be used to fund healthcare innovation and when they can expect to see results. Below is some very high level information about the venture capital process. More in-depth information is provided to accredited investors qualified to invest with MDVP. Click here to find out how to become an investor.
Venture Capital Dictionary
Here are a few terms you need to know to help you learn more about the investment offered through MDVP:
- Venture Capital: A type of financing in which a pool of money is assembled and then used to provide funding to businesses in the early stages of the development of new products or services. In exchange, the venture capital firm receives an ownership stake in the business, and hopes to sell this ownership stake for a profit after a few years of business development.
- Limited Partnership: This structure is used by venture firms to pool capital and make investments. Its tax benefits enable the limited partnership to pass through all profits to investors without any corporate or partnership tax.
- Limited Partners: All investors in a venture capital fund become Limited Partners. All of our Limited Partners are medical doctors like you.
- General Partners: The group of people who invest a venture capital fund's money and manage its returns. The General Partners also can be referred to as venture capitalists.
- Partnership Term: Period of time in which a venture capital firm seeks to sell its ownership interest in the companies it has funded. Unlike most venture capital firms that have a partnership term of 10 years, MDVP seeks a 5 year return on investment so that our Limited Partners have increased liquidity.
- Portfolio Company: A company the venture capital firm has chosen to invest in.
Venture Capital in a Nutshell
Venture capital is a way for expansion-stage businesses to get the money they need to fund their operations and commercialize their technology. The easiest way to understand how we use venture capital to advance medical technologies and create returns for our investors is to look at the life cycle of our venture capital investments.
Stage 1: Fund Raising. MDVP opens a fund with the goal of creating a fixed pool of money – $15 million for example. The money for this fund is contributed by our Physician Limited Partners – people like you who have the assets to commit to a high-risk, high-return investment. The fund is "closed" once investors have contributed the $15 million in capital.
Stage 2: Choosing Investments. Next, our General Partners evaluate expansion-stage healthcare investment opportunities and distribute the fund assets to those companies that can make a strong case for high growth potential in a short period of time. In exchange for the funding and industry know-how provided, MDVP receives stock in the portfolio companies as well as some control over the management decisions at these companies, including using our Physician Limited Partners as scientific advisors to the board.
Stage 3: Fostering Growth. After investing in a set of healthcare companies, MDVP seeks to make these companies more valuable by advancing the companies' core ideas and technologies. Within the partnership term, MDVP expects each of the portfolio companies to either "go public" through the sale of shares on a stock exchange or be "bought out" through acquisition by a larger healthcare company.
Stage 4: Investment Payout. Even though the goal is for every portfolio company to become a success, a percentage of the portfolio companies may contribute little or no profit for the fund. The return on investment for successful portfolio companies is designed to be high enough to outweigh these underperforming portfolio companies, so that in the end the fund is left with more than the $15 million initially invested. Capital is returned to each Limited Partner with their pro-rata share of profits as each portfolio company gains liquidity.
The General Partners at MDVP are healthcare technology experts. Our goal is to identify and collaborate with physicians who are committed to building world-class healthcare businesses. If you are interested in learning more about our investment model, find out if you qualify to become an investor or call (949) 225-4784 for more information about getting started.
