In
contrast with angel investors, venture capitalists
typically have strict investment criteria and
specialize in very specific high-growth industries.
Venture capital is another one of those broad
terms, in this instance, 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.
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 http://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 http://www.vcexperts.com/. |