Main Concerns About The Participation Of A Venture Capitalist
That is the question posed by many entrepreneurs and it is also the main obstacle to the development of venture capital investments. Entrepreneurs consider the dilemma that arises because of the entry of another person to the partnership. In all cases though the venture capitalist remains a shareholder, it does not replace the manager.
Often a venture capitalist may be a shareholder of a dozen other companies. It would be impossible for him or her to manage all of them. However, it is often used in the board of directors of the company and its supervisory bodies. He has access to the financial statements of the company, its balance sheets, and income statements.
Can the venture capitalist leave a company for another that is more profitable?
A venture capitalist has many investments and will have participation in more than one company. It should not be a matter of concern. Even though some companies may look more promising than other, a venture capitalist prefers to hold profit from all of them rather than just the most profitable one.
From a big portfolio of companies, not all of them will have the same level of returns. It would be riskier to the investor to put all eggs in one basket that is why having small investments in different companies is more attractive.
A venture capitalist may decide to sell the shares when he or she sees the company is not doing well or is about to go out of business. However, he or she will be losing money because the price of the share will have dropped.
How does the venture capitalist leave the company?
The first possibility is that the entrepreneur purchases the shares and takes full control of the company. But if the company has grown significantly, it is difficult for the owner to raise the funds to do so.
Three options are available to the owner in that case: the stock exchange for larger businesses, the arrival of a new venture capitalist or the acquisition by another group. In last two cases, the situation is not temporary and the company finally goes into outside hands. The sense of dispossession is total if the new shareholder holds more than 50% of the capital.
