Venture capital financing occurs when companies seek out private investors to invest capital for increasing their business operations. Several firms offer venture capital to companies, but they may have several requirements that may not be favorable for businesses.
- Many venture capital firms require an ownership percentage in the company as part of their capital investment structure. This ownership may give the venture capitalist management control over part of the business.
- Venture capitalists may require preferred stock, placing themselves ahead of other investors in the company. Venture capital funds may discourage other investors from investing in the company because the preferred stock is already sold to the venture capitalist.
- Venture capitalist agreements usually require financial statements or other information be forwarded for review by the venture capitalist firm. If the company is not performing well, the firm may call their loan and pull funding from the company.
- Venture capital investing is usually a short-term investment source. This requires companies to repay the investment faster than other types of loans, regardless of the cash flow of the company.
- Timothy Geithner, the current U.S. Treasury Secretary, has recently made comments wanting to regulate the venture capitalist industry. These future regulations may limit the amount of venture capital or create difficult situations for finding this type of investor.
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