Monday, May 26, 2008

Hand Over Your Company and No One Gets Hurt

People often ask me:
Paul, is it true that venture capitalists are out to seize control of my company?

This is in fact not the primary goal for an early stage venture capitalist. While most will take significant positions to account for the significant risk involved, VCs do not want to take away the financial incentive for founding management teams to succeed.

For a venture capitalist, there is a delicate balance that needs to be reached between 3 goals:
  1. Capitalizing on the upside
  2. Protecting against downside (managing risk)
  3. Ensuring the entrepreneur is motivated to make the business successful
Stay tuned for a more extensive post about the 3 goals of VCs. But it is clear that taking complete control of a company achieves only the first goal, and runs contrary to achieving the others.

Early stage VCs don't want your company, because they would rather rely on you to make it successful. They want you motivated and engaged. Just don't screw up, and definitely don't check out...

No comments: