The 5 most frequently-asked questions about venture capital and growth capital
These types of complementary financing, known as “equity financing,” can meet your business’s additional needs for capital.
What are the benefits of sharing my business growth and value creation with a shareholder/investor?
As the business owner, it’s up to you to determine if it’s better for you and your business to own all of a business with a certain value or part of a business with a much greater value because it was able to create value. You want to protect your financial wellbeing while sharing the business risks.
Bringing in an equity partner also allows your business to grow faster, because you’ll have seasoned directors who can offer their expertise and access to their network of contacts. Having an equity partner means you don’t have to go it alone and gives you the chance to expand your network and expertise.
If you become a shareholder in my business, my board will have a new director who will ask for veto rights. Who will manage my business? Will I lose control?
Directors are not appointed or given veto rights so that they can be involved in the day-to-day management of your business. You and the other shareholders mutually agree upon the choice of directors, who can bring the skills and experience needed to provide sound governance, diversification and stronger strategic management.
Veto rights are essentially intended to give investors certain rights with respect to matters related to maintaining business and share value.
As a partner, what are you contributing besides financing?
An investor/shareholder gives you access to many benefits and value-added services, including help with business governance, access to qualified directors and to potential partners and target markets, and much more.
In addition to the initial investment, having an investor also allows you to share risk, which makes it easier to make additional investments for occasional needs, or to quickly jump on business opportunities. Thanks to their unique expertise, they become important partners when it’s time to make strategic decisions for your business.
How long will we be partners for?
There’s no set time. Patient investment is about helping businesses at every stage of their development. The initial period typically lasts up to 20 years, after which time the partnership and needs are re-evaluated. The partnership can then be extended, or shareholders bought out.
What is a “put” or opt-out?
This option gives the investor/shareholder the right to ask that their shares be bought back after a certain period of time, as agreed upon with the other shareholders. At the end of this period, the shareholders agree whether or not it makes sense to buy back the investor’s shares and if so, under what conditions. In most cases, this period is extended by mutual agreement with the other shareholders to provide continued support for the business’s growth and to maintain liquidity, working capital and equity.