Pros and Cons of Venture Capital Financing

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Selected Aspects of International Business Law Handout 15.05.2013 Jana Kazmina, Tural Salahov & Frieder Delius Venture Capital Financing Content: I Definition VC financing II Process of VC funding III PRO’s and CON’s of VC financing IV A report on the legal structure when working with VC V Sources I Definition VC financing: An investment fund that manages money from investors seeking private equity stakes in startup and small- and medium-size enterprises with strong growth potential. These investments are generally characterized as high-risk/high-return opportunities. Explanation of abbreviations: VC = Venture Capital. VC’s = Venture Capitalists, who are the investors. II Process of VC funding: 1. Business Plan submission * A description of the opportunity and market size * Resumes of the management team * A review of the competitive landscape and solutions * Detailed financial projections 2. Waiting phase * Be responsive and quick to all inquiries and questions and * Follow up with VC´s on a regular base, actively send additional information 3. Introductory Conversation/Meeting * After being selected prepare for a first phone-interview * In addition an 1-2 hour meeting if the VC´s see a mutual fit 4. Due Dilligence * Thorough process of evaluating the business idea * Takes weeks to month depending on the size of the venture * Expect phone calls, emails, management interviews, customer references, product and business strategy evaluations 5. Term sheets and funding After a successful due diligence a term sheet is offered. See part IV for further information on the legal structure behind VC financing. III PRO’s and CON’s of VC financing: ~ Before going to work with VC’s, ensure that the PRO’s outweigh the CON’s! ~ What VC Financing will add:

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