| If you want to take a company big, capital is often a | | | | so that the owner can reap the financial benefits of |
| critical need. This means looking into venture capital | | | | any corporate action first. The convertible aspect |
| for most businesses. This approach has helped plenty | | | | simply means the owner can convert this right into |
| of companies like Google and Tesla go public. | | | | real shares at any time such as when the company |
| Understanding the process, however, can be a bit | | | | begins the IPO process. |
| difficult. In this article, we take a look at how this | | | | The VC manager will also look for further assurances |
| type of investor secures its investment in a business. | | | | beyond just taking a stock position. One is the right |
| Why does a venture capital fund invest in a particular | | | | to elect one or more members to the Board of |
| business? To make a profit. Yes, they may be | | | | Directors. This gives the fund the ability to influence |
| interested in other issues, but the core purpose is to | | | | important decisions taken by the company, decisions |
| maximize their return on investment by quickly | | | | that often ultimately lead to success or failure. |
| building your business and taking it public. | | | | What do these steps establish in your relationship |
| Most VC funds are going to invest millions in your | | | | with the venture capitalist? A couple of things. First, |
| company to make this happen. That is a sizable | | | | they provide the VC fund with the best chance of |
| amount of money and the fund is going to want to | | | | getting a big payoff if you go public and are a |
| secure it. There are different ways for going about | | | | success as well as a preferred asset distribution if |
| this, but the most common is to buy what are | | | | the business fails. Second, it gives them the ability to |
| known as "convertible preferred shares" in your | | | | influence how the company will be run particularly as |
| corporation. | | | | it relates to key decisions. As a business owner, that |
| Convertible preferred shares are pretty much what | | | | is a reasonable exchange for the millions in funding |
| they sound like. They are shares that place the | | | | that such a relationship can provide. |
| owner in a preferred position to regular share owners | | | | |