Raising Entrepreneurial Capital

Chapter 6

Venture Capital

CHAPTER GOALS

After reading this chapter you should:

. know the characteristics of a firm appropriate for venture capital

financing

. understand the structure of the venture capital industry

. understand a term sheet and the reason for the terms

. be able to value a business using the venture capital method

INTRODUCTION

Businesses that are in a rapid growth phase often find a need for financial

assistance well beyond their current resources and networks. While this is a

very positive indicator for a business, the search for outside investment can

be extremely challenging. For firms with very high growth prospects and a

high probability of exit through sale of the company or initial public offering

(IPO), venture capital may be the answer to a firm’s capital needs. This

chapter looks at the world of venture capital. We will look at the structure of

the venture capital industry and a typical venture capital partnership. We

will examine a term sheet and analyze the reasons for common deal terms. In

addition, we will cover the venture capital method of valuation.

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