Venture capitalists typically have strict investment criteria and specialize in very specific high-growth industries. Venture capital is a broad term, meaning investment funds, partnerships, and divisions of large corporations whose focus is on investing in emerging and promising young companies.
Venture capitalists generally take preferred stock in a corporation in exchange for their investment, and typically expect to receive certain rights regarding their investment, including the right to elect one or more directors to the corporation's Board of Directors; the right to receive financial and other corporate reports and information; priority over common shareholders; and more.
Venture capitalists generally hope to cash out in three to five years and rarely invest less than several million dollars at a time. Also in contrast with angel investors, venture capitalists often take an active role on the boards of companies in which they invest, which may result in loss of independence and control by the owners of those companies.
Stock Purchase Agreement
When a deal has been struck with venture capitalists, the terms of the venture capital investment are typically first memorialized in a Term Sheet, with full-blown legal documents subsequently embodied in a Stock Purchase Agreement. The Stock Purchase Agreement tends to be a fairly complicated document and is generally drafted by the venture capitalists' attorneys. Sample Stock Purchase Agreements are available for review and purchase at www.AllBusiness.com/forms.
The Stock Purchase Agreement typically includes the following terms
- The price of the stock to be sold and number of shares to be purchased;
- Representations and warranties of the corporation;
- Covenants of the corporation;
- Conditions to closing the deal;
- A requirement to reimburse the venture capitalists' legal fees; and
- Exhibits and any related agreements.
Finding A Venture Capital Firm
The world of venture capital firms is very small. Once you are able to tap into that world, you should be able to find the firm that best suits your corporation's needs. You should start by asking your securities lawyer and accountant. You will want to speak with any colleagues who have experience working with a venture capital firm to raise money for their own ventures. There are publications and journals for venture capitalists that should be available in any public library. Another way to find a venture capital firm is to perform a web search on www.google.com or your search engine of choice, for venture capital or venture capitalists.
Articles, additional information, and forms regarding venture capital and venture capitalists are available at www.vcexperts.com.
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