Any Experience with Venture Capital Investments

[intrepid27]

I'm looking at making an investment in a Company that is currently doing their Series B Capital Funding. This would be a personal investment. I know the company fairly well and have dealt with some of their management team in the past.

I'm getting ready to sign a NDA and that will give me access to their investor information. But I'm early in the process and have never explored this before.

Has anyone here had experience with this? Probably most interested in things to watch out for in this type of situation.

 

[SCNCY]

I don't have any direct experience in this, but equally interested in this topic in the future (once I have the money). Some general advice.

1. Will you be making a large contribution to the company? What percent of the company would you be owning?
2. If possible, try and get on their BOD. If you are making a rather large investment, this shouldn't be unreasonable.

 

[discydisc]

I work for and have worked with several companies that have gone through small (half million-5 million) private fundraising rounds. I am not an investor myself, but I would be very inquisitive about how they plan on making money in the near term future, so that they don't have continuously fund raise/dilute your investment.
Also don't trust anyone at their word and and do your own personal research into whether that story adds up.
Any investment on this scale should be seen as a high risk/reward scenario where there is a significant chance you lose your entire investment.

 

[DSMCy]

Once you get access to the financials, I'd go straight to the cash flow statements. I'd want to know where cash is coming from, and where it is being allocated.
You can "hide" a lot of information in the financial statements, but you usually can usually follow the money.

 

[RonBurgundy]

Two other aspects to consider:

(1) Are you in for the long haul? There will be future capital raises. Are you prepared to continue funding, or you will have to accept dilution of your ownership.

(2) You will receive a K-1 for your share of losses/gains. K-1 does not have to be provided to you by Jan 31 (as is expected for a W-2). So all of your future personal tax filings will be delayed, waiting for the K-1. I damn near had to file an extension request this year due to a VC company being so late on the K-1.

** Edit - Here is a good site for researching VC companies. If they have already done a Series A, they should be listed. You can compare their market/business model and see what other companies are in the same space.

https://www.crunchbase.com/