Some Venture Capital Realities

Although there is a large venture capital market, the truth is that access to venture capital is really very limited. Venture capital companies receive huge numbers of unsolicited proposals, the vast majority of which end up in the circular file unread. Venture capitalists rely heavily on informal networks of lawyers, accountants, bankers, and other venture capitalists to help identify potential investments. As a result, personal contacts are important in gaining access to the venture capital market; it is very much an "introduction" market.

Another simple fact about venture capital is that it is incredibly expensive. In a typical deal, the venture capitalist will demand (and get) 40 percent or more of the equity in the company. Venture capitalists frequently hold voting preferred stock, giving them various priorities in the event that the company is sold or liquidated. The venture capitalist will typically demand (and get) several seats on the company's board of directors and may even appoint one or more members of senior management.

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