As business lawyers dealing with start-ups in Silicon Valley, we often meet founders with great ideas but without a fundamental understanding of how their company can raise funding for their new business. Start-up companies and small businesses hoping to expand are considered high-risk businesses. It can be difficult for entrepreneurs to turn their ideas into reality. This is why venture capital plays such a critical role in business development .
Venture capital refers to capital that is invested in a high-risk project. When seeking venture capital, it is very important to consult an attorney at a corporate law firm for legal advice regarding whether your idea is suitable for venture investment. If you decide that you do have a fundable idea, the attorney can help guide you on structuring your company to accept investment, and the types of agreements required for investment at each stage of growth.
As you’ll learn by watching this brief video from Capital News Online, when a venture capitalist agrees to invest funds in a risky project, he or she is likely to place conditions on the investment. In the example given in this video, the venture capitalist insists on owning 60 percent of the company and on having the authority to make all major decisions for the business. There are often other conditions, such as membership on a board, approval rights over subsequent financings, and requirements over how a founder can vote and transfer their stock. Because of this, it’s essential to seek the counsel of a corporate attorney to help guide you through the adventure of starting your new company.