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Date of this Version

9-27-2019

Document Type

Book Chapters

Summary

  • Venture capital (VC) firms exchange cash for equity or equity-like securities.

  • Venture capital funding most often occurs in the early to middle stages of a company, be­fore an acquisition or an initial public offering. Typically, VC firms make a relatively large investment, ranging from 1 to 30 million dollars, though in more recent years, “micro-VCs” that write smaller checks have become more common. Often, a company will raise money from several venture capital firms, either simultaneously or in subsequent transac­tions.

  • Investors expect a 3–10x+ return on investment for any given investment, depending on the stage of the company at the time of investment.

  • Venture capital firms may protect themselves by retaining the right to invest in the future, by protecting their equity from dilution, and through special voting rights including block­ing rights on certain corporate actions and often through representation on the Board of Directors.

  • Venture capital investment term sheets typically set a new valuation of the company.

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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