VENTURE CAPITAL 3
Friday, January 21, 2011
Venture Capital- The Odd Relationship between Fund and Owners
Venture capital is a necessary form of financing for many businesses that are seeking to grow significantly, particularly in technology or medical fields where capital costs are huge. That being said, the relationship between the venture capitalists and shareholders of the business can be a very odd one.
Most businesses looking into VC funding as a means to accelerate growth have unique ownership structures. Typically, there are only one or two individuals owning a significant number of the shares. Moreover, these individuals are usually the same people who started the company from scratch. This gives them both an emotional and financial tie to the company.
The average venture capital fund manager is looking for what? A company with serious prospects of going public or being purchased. There is no emotional attachment to the company whatsoever. The only motivation that manger has is to produce a winner for his fund so that he and the investors can make money and he can attract investors for future venture capital efforts as well. That is all.
The relationship between the fund manager and primary business owners can be an odd one at times. On one hand, both are highly motivated to see the company grow significantly so that financial rewards can be reaped. At the same time, however, the business owners have an emotional attachment to "my" company while the fund manager views it as a "product." This can lead to conflict between the two parties.
Is there some magical answer for handling these differing views? Not really. Keeping the lines of communication open is key, but that doesn't always work. The best that can really be offered is for individuals considering venture capital funding to really understand that the emotional attachment that they have to their company must be terminated. Once funding is obtained, they own a company that is a product, nothing else. If that emotional leap cannot be made, then it is often a big mistake to seek venture capital funding.
Thomas Ajava writes for VentureCapitalInvestmentFirms.com - your online source for international venture capital information.