Venture Capital Funds
A Venture Capital Fund is a type of private investment fund aimed at financing start-up companies and small businesses that show long-term growth and high-return potential.
Typically managed by a venture capital firm known as the General Partner, the fund is sourced from different financial institutions or high net worth individuals, and is intended to subsidize fledgling entrepreneurs who have exceptional ideas for innovating products, services, or technology but have no access to traditional, low-cost financing.
Venture Capital funding is not intended to be a longstanding investment. Instead, it is meant to finance a young but promising business and help it grow to a point where it becomes a gainful enterprise, then strategically exit the company before it tops out.
To the astute investor, no business pitch — no matter how cleverly conceived — is worth financing if it cannot prove to be gainful.
As the Harvard Business Review points out: “The myth is that venture capitalists invest in good people and good ideas. The reality is that they invest in good industries.”
And while there is great potential for a windfall in earnings, smart investors also understand that they are taking a high degree of risk.
Viability, timing, and due diligence are of utmost importance to the success of any investment. A successful venture calls for a comprehensive knowledge of current industry trends, a sensible balance between prudence and audacity, and a thorough scrutiny of the company’s records to ensure that it meets the legal requirements for VC funding.
No matter how lucrative a proposal appears to be, seeking expert advice on a company’s legal and commercial credibility should be on top of an investor’s to-do list.
As your strategic partner, Veritas Global will conduct extensive due diligence on the company you wish to finance in order to verify its commercial feasibility and legal compliance, uncover any hidden liabilities, and provide you with comprehensive and insightful advise before you make the final call.
Business and legal due diligence
Venture Capital firms are usually inundated with countless proposals and business plans from all sorts of start-up entrepreneurs and small business owners.
However, many companies can look a lot different on paper than they do in reality, so identifying a winning investment opportunity just from reviewing proposals alone can be as frustrating as finding a needle in a haystack.
A carefully planned and professionally conducted due diligence review allows venture capital investors to confirm whatever information is provided in the business proposal, as well as to independently review and evaluate the company’s strengths and weaknesses before making a final decision.
Due diligence is performed to satisfy the need for vital information from two crucial standpoints – business and legal.
Business diligence examines the company in terms of its business model, management, market potential, financial projections, and other details of its products and services.
Meanwhile, legal diligence focuses on reviewing the company’s credentials and documents, including, but not limited to, its capitalization table and compliance with state and federal securities laws, intellectual property rights, employment agreements, and other pertinent records. During this process, your legal team should be able to advise you on any potential risks and liabilities in the proposed investment.
Upon completion of due diligence, the Venture Capital firm or investor can safely pledge its funding – in full or in tranches – in exchange for equity in the company.
However, returns on venture capital investments can only be realized if the investor stages an exit before the company reaches its peak.
Some common ways to exit profitably are through direct sale of shares, mergers and acquisitions, or through an Initial Public Offering (IPO).
Your competitive advantage
While Venture Capital investing can be volatile and uncertain, it also promises above-average profits for those who are able to leverage due diligence in making accurate projections.
Partnering with an seasoned legal team like Veritas Global is essential to performing due diligence. With years of experience and proven success in assisting both VC investors and startup businesses, you can rely on us to provide practical and perceptive counsel throughout the entire process – always with the big picture in mind.
Our accomplished team of legal professionals works with international clients who wish to do business beyond borders, especially in the new digital economy. We can help you identify up-and-coming companies and explore new global market spaces – enabling you take part in investment opportunities anywhere in the world.
Venture Capital Funds are challenging in the sense that the end goal is to maximize profit over a considerably short period of time under such high-growth, high-risk conditions.
Maintain a competitive advantage by teaming up with a strategic partner like Veritas Global to facilitate an efficient and effective due diligence process and help you plan your next steps with greater certainty and confidence.