Many entrepreneurs have a goal of securing venture capital for their budding business. Start-ups burn through cash incredibly quickly and venture capital often becomes necessary in order to expand the business. However venture capital comes at the cost of a percentage of ownership in the start-up. Determining when to accept venture capital and whether divesting ownership in a company is not a decision to be taken lightly. Thankfully, retaining a seasoned attorney greatly helps with the decision-making process and implementation.
There are many factors to consider when drafting a venture capital agreement. It is important to realize that many venture capitalists take an active role in managing the start-up. Entrepreneurs who are uncomfortable with this idea should either seek out passive venture capitalists or give up on the idea of venture capital in its entirety. Typically venture capitalists were successful entrepreneurs themselves so their advice is usually valuable.
Venture capital groups have their own metrics for rate of return and desired ownership stakes in a start-up. There may not be much room for negotiation, but a venture capital attorney can advise an entrepreneur as to whether a start-up is ready to ask for venture capital or if its owners are being offered a raw deal.
An attorney can also help a company prepare for the venture capital process by developing a venture capital plan. Having a plan in place will not only ensure all of a start-ups ducks are in a row but will also help give a positive impression to the venture capitalists. A venture capital plan can highlight many things like the company’s vision and goals, how a venture capitalist will get repaid, much money the company needs, and any other necessary details about the company.
If you are preparing to receive venture capital or want to prepare your start-up for future funding, you can contact Stone Law at 732-444-6303 or leave us a message on our website.