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Hi sir,
Whats is venture capitalist company, and whats the issue here within the context?
Thanks
Venture capital is a source of finance that you should be aware of from your FM(F9) studies. Providers of venture capital will be looking to invest in companies with strong potential, solid management and potential for high returns. A VC would carry out due diligence. The terms of providing VC might include representation on the company’s board, access to regular management accounting information and/or a dividend policy that promotes high growth (i.e. to retain earnings for reinvestment). Of particular relevance is that the VC’s “exit route” (i.e. how and when they will sell their investment) will be pre-planned – typically 4-5 years and usually not more than 7 years.
In the case of Baltimore, the VC company provided capital 4 years ago – so exit may be imminent.
1) Is it a must that they sell their invest at end of contract period (4-7years)
2) must they sell to (only) the original company they financed it or it can sell to any outside shareholders?
1. Personally, I think it is not a Must, buy because VC seeks high return business, so they are not willing to stick to a particular company for a long time. It is their strategy to go ahead and look for a better opportunity.
2. I think VC can sell it to any company that could provide highest possible cash.
Hi Billy – please do not answer students’ questions in the “ask a tutor” forums (but by all means give your views to students in the ACCA forums).
“Zkaay” – it is highly probable that there will be a clause in the VC agreement to guarantee its exit. It might be specified that management of the business has to buy/repurchase the shares or that they have “first refusal” before the shares are sold to another investor (existing or potential).
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