Do venture capitalists have to maintain ownership to fund a venture?
In the wake of the recent dot-com crash, this type of financing slowed but didn’t totally stop. Rather, venture capitalists are taking a more aggressive posture, insisting on increased involvement in the decision-making process. On the one extreme, VCs will make equity investments, expecting the percent of total capital reflect his or her level of voting rights in the company. On the other extreme, the VC may invest capital only in the form of a loan. However, that VC is still going to insist on some level of control and decision-making. Remember, in the VC environment you are seeking capital where a traditional commercial lender will simply not participate. VC investment implies a level of risk greater than a bank is willing to take, so expect the financier to want some degree of input and control. The key for any new business in the current VC atmosphere is doing all the homework before approaching investors. You also should check out this column on where to find venture capitalists.
