Is Venture Capital Right for the Business?

In addition to providing capital, venture capitalists can also provide significant other forms of assistance. Many venture capitalists have significant experience leading businesses, especially smaller, newer businesses. This can be a tremendous source of knowledge for owners and managers to draw upon. Additionally, venture capitalists often have advisory boards comprised of seasoned business executives or a network of such executives to call upon. These can also be sources of expertise for the owner or manager. This expertise extends across the spectrum of skills needed for the business.

Venture capitalists also are very adept at arranging subsequent financing for the business. This is critical for the venture capitalist since this subsequent financing often is necessary for continued or expanded operations and to effect the exit strategy.

The entrepreneur who intends to raise capital from a venture capitalist through the sale of securities, whether it is debt or equity, must also consider whether the offering would constitute an offering requiring registration and/or filing with the Securities & Exchange Commission (Securities Act of 1933 Act). There are several exemptions and/or safe harbors from the registration requirement available to small businesses under Regulation D under the 1933 Act. If an offering were structured within these provisions, no registration would be required, however a filing using SEC Form D would be required. An experienced attorney or firm experienced in working with venture backed companies can advise any business seeking outside investors.

The exemptions/safe harbors are mainly based upon the following factors:

• Size of the offering -
  A sale of securities for less than $5,000,000 would generally have an exemption available
• Number of offerees -
  A sale to less than 35 persons would generally have an exemption available
• Nature of offerees -
  A sale to accredited investors, persons with specified levels of net income or net worth, would generally be exempt
• How the offering is conducted -
  Offerings not involving a general solicitation would generally be exempt