Venture Capital ? Rights Your Venture Capital Manager Will ...

Venture Capital ? Rights Your Venture Capital Manager Will Demand

Article by Thomas Ajava

Most people view venture capital as the Holy Grail source of funding for their business. This makes sense as the money is big and it can make a huge difference between those that make a killing and those that don?t. That being said, it is important to realize that VC funding comes with some serious attachments.

Let?s start with the rule of common sense. Ask yourself a simple question. Is anyone going to give you millions of dollars without wanting a say in what is going on with the business in question? Probably not. In the case of venture capital, we can say definitely not. A fund manager is going to assert more than a few things and these are known as the fund rights.

What are fund rights? They are rights designed to protect the investment of the fund in your business and maximize the return. They are different in every deal, but there are a couple typical ones.

1. The first is the right to elect a certain number of members to the Board of Directors for the company. The purpose of this is, of course, to have a say in the direction of the entity by the Board.

2. The second is the right to certain reports and information on the business. Shareholders always have the right to see certain books, but this goes beyond that to certain figures that the fund manage deems relevant to ascertaining the direction of the business at any particular time.

3. The third right is the right to maintain its stock percentage within the ownership of the business regardless of any further share issuances. Business ownership groups get into nasty disputes when the Board tries to issue more shares to attract capital. This dilutes the ownership percentages of the current owners. The venture capital fund managers protect their funds by requiring this.

This is only a short list of the requirements and attachments that will come with venture capital funding. This is not to suggest it isn?t worth going after, just that you need to have your eyes open when doing so.

About the Author

Thomas Ajava writes about venture capital investment and other VC subjects for VentureCapitalInvestmentFirms.com

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