Venture capital (VC) firms are pools of private capital that typically invest in small, fast-growing companies that can't raise funds through other means. In exchange for this financing, VCs receive a share of a company's equity, and the founders of the firm typically stay on and continue to manage the company. A VC firm wants management to focus on improving ,while the managers may also act to increase VC investments have two typical components: (1) managers maintain some ownership in the company and often earn additional equity if the company performs well; (2) VCs demand seats on the company's board. incentiva aners with the incentives of owners
Venture capital (VC) firms are pools of private capital that typically invest in small, fast-growing companies that can't raise funds through other means. In exchange for this financing, VCs receive a share of a company's equity, and the founders of the firm typically stay on and continue to manage the company. A VC firm wants management to focus on improving ,while the managers may also act to increase VC investments have two typical components: (1) managers maintain some ownership in the company and often earn additional equity if the company performs well; (2) VCs demand seats on the company's board. incentiva aners with the incentives of owners
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Venture capital (VC) firms are pools of private capital that typically invest in small, fast-growing companies that can't raise funds through other
means. In exchange for this financing, VCs receive a share of a company's equity, and the founders of the firm typically stay on and continue to
manage the company.
A VC firm wants management to focus on improving
while the managers may also act to increase
VC investments have two typical components: (1) managers maintain some ownership in the company and often earn additional equity if the company
performs well; (2) VCs demand seats on the company's board.
Management ownership serves to
the alignment of the incentives of managers with the incentives of owners.
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