When a venture capitalist invests in a company the issue of ownership never fails to arise.
The issue of control often arises when talking about capital investments. When a venture capitalist brings in the funding to a company, the owner is bound to wonder if the participation entitles the investor of more control or power. Generally, venture capitalists do not replace the existing management and their participation is clear from the beginning.
Often a venture capitalist may be a shareholder of a dozen other companies. It would be impossible for him or her to manage all of them. However, it is often used in the board of directors of the company and its supervisory bodies. He has access to the financial statements of the company, its balance sheets, and income statements.
Another concern of owners is the fear of venture capitalists going to another company.
This fear though reasonable is unfounded. A venture capital generally has a series of investments in different companies, some of them more valuable than others. Nevertheless, the goal of the venture capitalist is not to go with the most profitable but to have profit from all of them. There is less risks when funding is given to more than 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.
And even if the venture capitalist would leave the ship before it sinks, it is expected to sell its shares. But if the company is not doing well, it will find no purchaser at the price originally expected. It is therefore obliged to wait for it to go better.
The exit of the venture capitalist is another concern.
The first option is for the owner of the company to buy the shares for the investor. The more successful the company has become, the more expensive the shares will be and the owner may not be able to afford it.
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.
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