Business Law | Venture Capital

Venture Capital Attorney

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What is venture capital?

Venture capital is a type of financing that investors provide to early-stage, high-potential, and start-up companies that have already grown quickly or have exponential growth potential. Investors will generally receive equity within the company and will have influence over company decisions. Those investors are referred to as venture capitalists. Venture capitalists can come in the form of accredited investors, wealthy investors, investments banks, financial institutions, and, in some cases, angel investors. Companies will generally seek venture capital as a way sustain growth and not disrupt cash flow. Should a company seek a more traditional route of acquiring funds from a loan or debt financing, that company will have to pay back the loan as well as interest, which ultimately is a loss in earnings. Examples of companies that sought venture capital are Amazon, Apple, and Facebook.

Why do I need legal guidance on venture capital?

Venture capital generally involves a large sum investment from a venture capitalist, often legal counsel is sought after by the venture capitalist as well as the companies seeking capital. Venture capital legal counsel covers a wide range of legal and business matters like contractual agreements, venture fund structures, intellectual property protection, policy work, employment laws, securities laws, tax regulations, market insights, and much more. A venture capitalist lawyer will regularly work will have clients on either side of the equation advising both venture capitalists and early-stage, high-potential, and start-up companies on how to establish and operate effectively within venture capital opportunities.

Structure of Venture Capital Funds

When a venture capital deal is made with accredited investors, a large portion of the company ownership is sold to investors through a limited partnership (LP) and general partner (GP). Limited partnerships are usually those institutional investors and GPs are active investors who make decisions on how the money is provided by the LPs. The general structure of a venture fund is:

Capital is anything that holds value to its owner. Examples of capital are money, intellectual property, and financial assets.
2Venture Fund
A venture fund is the investment vehicle used to invest.
3Management Company
A management company is the business of the fund.
4Limited Partners (LPs)
Limited partners are generally institutional investors (e.g., endowments, foundations, high-net-worth individuals) who commit capital to the fund.
5General Partner (GP)
A general partner is a venture capital partner with the management company who raises and manages venture funds and makes investment decisions.
6Portfolio Companies
Portfolio companies are those early-stage, high-potential, and start-up companies that initially sought funding. These portfolio companies exchange venture funding for shares of equity within the company.

Given the delicate structure and multiple players required for venture capital deals to go through, it’s important to have experience legal counsel available to ensure venture funds are structured appropriately, contractual agreements are beneficial to both parties, as well as ensuring a slew of other legal issues are addressed for such high-risk/high-return business and investment opportunities.

To find out how Blake Harris Law can help you with your venture capital needs and investments, please call us at 833-ASK-BLAKE or contact us here.