Will I own money to a venture capital firm?
Vanita asks:
I’m not too sure of how VC really works. Let’s say I am a startup company and we get founded by VC. They invest in the company and get a share of it, I pay some annual fees, and if everything rolls alright we get to split the money in the end after an acquisition or IPO.
I’m not too sure of how VC really works. Let’s say I am a startup company and we get founded by VC. They invest in the company and get a share of it, I pay some annual fees, and if everything rolls alright we get to split the money in the end after an acquisition or IPO.
But what happens if the product fails? Will I own any invested money to the VC firm? How does it work?
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I’d find an attorney for advice. VC’s can be very complicated and you could end up owing a lot a money to them. The agreement should be done by an attorney. Check him
out first.
VCs invest in start up companies. As any small business owner can tell you, there is a lot of risk that the business will fail and the venture capital fund’s investment will fail. VCs know this, which is why they take such a large chunk of the profits if a company does actually succeed.
I assume you have not already found an interested venture capitalist because he/she would explain the contract to you, and what sort of action would take place in the event of a failed venture. Depending on the agreement it is possible that you could lose money, I doubt that you would owe money to the VC if the VC only invests in your company and you don’t have an agreement that includes such a precondition. But without knowing your exact situation that is all I can offer, I suggest consulting an attorney or financial adviser to properly assess your situation.
Best of luck, I hope that your company reaches the IPO stage rather than this situation.