Leslie Wm. Adams & Associates

Considerations for startups pursuing venture capital

When Texas entrepreneurs launch a new business, they may be drawn in by the thought of gaining significant investments through venture capital. Angel investors and venture capitalists can be particularly important for people looking to launch innovative businesses and grow them widely. Some of the largest tech companies to emerge in past decades have been supported by venture capital, and those looking to follow along the same path may want to imitate that model. Still, it is important to consider whether a particular venture capital investor is a good fit for a particular startup in order to help ensure a successful future.

Experts advise that founders should work to understand the motivations driving a venture capitalist to invest in their companies. A large number of supported projects fail to come to fruition, and a 40 to 50% failure rate is common. Venture capital firms make their money on the percentage of successful investments, where they will multiply their invested funds many times over. Therefore, this kind of investment is a better fit for founders who want to see their companies grow rapidly, rather than those who want to remain smaller.

Another question that founders may consider is what level of equity stake and decision-making power they are willing to cede to venture capital funds. Serious problems have developed at a number of companies due to poor relations between investors and owners, each with a role to play in the governance of the company.

Even keeping these caveats in mind, venture capital can be an important opportunity for startup financing. A business law attorney can provide advice and guidance to companies considering a range of investment frameworks.

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Leslie Wm. Adams & Associates 3700 Buffalo Speedway, Suite 420, Houston, TX 77098 Phone: 713-364-0564 Fax: 713-728-6366 Houston Law Office Map

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