When a venture capitalist invests in a company the issue of ownership never fails to arise.
That is the question posed by many entrepreneurs and it is also the main obstacle to the development of venture capital investments. Entrepreneurs consider the dilemma that arises because of the entry of another person to the partnership. In all cases though the venture capitalist remains a shareholder, it does not replace the manager.
The investments of a venture capitalist are not reduced to only one company. He or she may have shares in ten of them. For this reason, being a manager is not an option. However, they participate in the decision making process and will have access to the financial statements of the company.
Another concern of owners is the fear of venture capitalists going to another company.
A venture capitalist has many investments and will have participation in more than one company. It should not be a matter of concern. Even though some companies may look more promising than other, a venture capitalist prefers to hold profit from all of them rather than just the most profitable one.
A venture capitalist knows that from a portfolio of ten companies in which he or she invests only a minority will experience a return on capital sufficient to provide the overall portfolio performance.
There is also the possibility of a company going bankrupt or out of business. The responsibility of the venture capital is to sell the shares when the contract convenes it, risking losing some money. However, he or she may also choose to stay around and wait for the company to improve when its finances are failing.
What is the exit process of a venture capitalist?
The first possibility is that the entrepreneur purchases the shares and takes full control of the company. But if the company has grown significantly, it is difficult for the owner to raise the funds to do so.
The owner has three choices: selling the shares in the stock market, or to another investor, or to another company. The last two choices are more long-term and it may involve changes in the power structure depending on the participation.