A venture capitalist (VC) is a private equity investor that provides capital to companies exhibiting high growth potential in exchange for an equity stake. This could be funding startup ventures or supporting small companies that wish to expand but do not have access to equities markets.
It seems simple, you have a small business and want to take it to the next level, but don’t have the capital, and the banks won’t talk to you.
I was reading a scenario that described what is apparently a common theme with some in venture capital world. According to the story it is almost typical that some venture capitals will almost deliberately under capitalize a new venture. Forcing the owner into a corner.
The entrepreneur puts all of the funds into the business, and dilutes their equity for no personal benefit. They pour all of their time, use all of their ideas and then the capital venture guys will find a way to squeeze him out and capture the value of his ideas.
While this is probably the actions of a minority of VC it is probably is not an unusual circumstance.
I have talked one client out of giving up the bulk of his business for a small bit of cash. While another took the money and has regretted it even sense.
I know of other cases, but they are all hear-say. So, if you consider VC money, watch your back and exit strategies.