Myth : VC’s are risk takers
Reality : VC’s are in the business of identifying and mitigating risk through due diligence, valuation, term sheet – economic provisions, control provisions. The VC process is slow deliberative and based on lots of information
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well well! The above post almost makes it seem like risk mitigation is purely a pre-investment activity — there are risks attributable to the basic business (creating wealth) and sharing (distributing wealth). While you can cover whatever you can on distributing wealth on a pre-investment basis, that is certainly not the business that VCs are into.
VCs are in the business of backing risks, and then, through execution (and partly, through their own involvement) mitigating them over the lifetime of their investment. Such risks include (in no particular order)
– management risk (getting the right people on board)
– financial risk (making sure money is available for doing what the startup set out to do)
– concept risk (customers want what the company is building)
– product/technology risk (we can build what we say we will build)
This is the process of value creation — value out of which, ultimately, all shareholders must distribute.