Venture Capital Financing

Venture capitalists have strict investment criteria, and specialize in very specific high-growth industries. Venture capital is a broad term that indicates investment funds, partnerships, and

Venture capitalists generally take preferred stock in a corporation in exchange for their investment, and expect to receive certain rights regarding their investment, including the right to elect one or more Directors to the corporation's Board of Directors, the right to receive financial and other corporate reports and information, and priority over common shareholders. Read The Structure of a Venture Capital Investment for details.

Venture capitalists hope to cash out in three to five years, and rarely invest less than several million dollars at a time. Also in contrast with angel investors, venture capitalists often take an active role on the boards of companies in which they invest, which may result in loss of independence and control by the owners of those companies.

Stock Purchase Agreement

When a deal has been struck with venture capitalists, the terms of the venture capital investment are first memorialized in a Term Sheet, with full-blown legal documents subsequently embodied in a Stock Purchase Agreement. The Stock Purchase Agreement can be a fairly complicated document and is usually drafted by the venture capitalists' attorneys. Sample Stock Purchase Agreements are available for review and purchase in AllBusiness.com's Forms & Agreements section.