CorporateDIrect FullLogoWhiteLetter

Venture capital firms are a useful component in the business engine of growth. They are also hard-nosed investors who have earned the not so flattering nick name ‘vulture capitalists’. When it comes to ‘VCs’, you need to be knowledgeable and cautious.

A venture capital firm is a company that raises large amounts of money from individuals and institutions and then invests in startup businesses. Because these firms don’t do anything else, they are very interested in the finances of the businesses in which they invest – so much so that they will usually want significant ownership in the company (and possibly a seat on the board or a place in management) with input on day-to-day decisions.

Members of venture capital firms are big on profits and big on growth. Some want to triple their money in 18 months. Others want even greater returns. To do that they’ll need a large chunk of your shares and they’ll drive your (their) company with the accelerator past the floorboard. In achieving their goals, they’ve left many a founder behind at the rest stop. Of course, being left behind with 10% ownership of a company whose stock is soaring may not be such a bad result for some. But for others it can be bruising.

Be sure to talk to your advisors and other clients of the venture firm you are considering before formalizing a relationship. In many cases a venture firm can be a big help, in others a major hindrance. Be careful.