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Question
An entrepreneur may need the venture capitalist in the second stage of financing or as a source of bridge financing but he should always go in for due diligence before opting venture capital as a source of finance.
Comment on the given statement from the perspective of an entrepreneur.
Solution
- An entrepreneur’s business is typically confidential and proprietary. Most venture capitalists will require significant detail with respect to a company’s business plan. Entrepreneurs must remain vigilant about sharing information with venture capitalists that are investors in their competitors.
- Most venture capitalists treat the information confidentially, but as a matter of business practice, they do not typically enter into non–disclosure agreements because of the potential liability issues those agreements entail.
- Entrepreneurs are typically well-advised to protect truly proprietary intellectual property.
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