Help Get Your Business Off the Ground
If you have developed a unique concept in the medical, information technology, energy or other “high tech” industry, yoiu may be considering venture capital as a means for bringing your product to the market. In today’s economy where traditional financing is elusive, venture capital can be an attractive option to help get your business off the ground. Venture capitalists, or “VCs” will generally require a significant ownership interest (though usually less than majority), impose stock transfer and voting restrictions upon the company’s owners, and assume an active rols in the company’s management. While a VCs participation in management is probably a good thing, founders are sometimes hesitant to give up control over the idea or company that they have nurtured for years.
How Epiphany Law Can Help
The attorneys at Epiphany Law have assisted clients through the venture capital funding process, and have the experience necessary to help founders understand the role and expectations of the VCs and the complex transaction documentation. We can help educate you as to the funding process, the benefits, and the trade-offs. Most often, founders deteremine that sacrificing some level of control for the funds and expertise provided by the VC to be well worth the reward. The key is to be fully informed and educated when making such a decison
Questions & Answers
Q: What is the difference between “venture capital” and “private equity”?
A: While the terms are often used interchangeably, the difference generally relates to the timing of the investment. Venture capital firms are associated with providing “seed” capital to start-up companies with high-growth potential. Private equity firms tend to focus instead on mature companies, and purchase all or a controlling stake in the companies to prime them for sale.
Q: What do the different “rounds” mean in the VC funding process?
A: The different rounds, which are often designated by letters, such as “Series A” and “Series B” has to do with different rounds of funding, typically at an increasing price per share as the company continues to hit its objectives.
Q: What transaction documents can I expect in a VC deal?
A: The process usually begins with negotiation of a term sheet, in which all of the key terms are negotiated and agreed upon. The definitive agreements follow, including amended Articles of Incorporation which create different classes of stock and rights; the Stock Purchase Agreement; a buy-sell, right of first refusal or other similar agreements by which the founders agree to certain restrictions on their ability to transfer their stock; an investor rights agreement which grants certain rights to the VC such as board seats or the ability to participate in management decisions, and/or a voting agreement.