A capital idea: what entrepreneurs need to know about VC investments.

• Author: Webb, Gaylen
• Position: Focus

So you have bootstrapped your business using your own money or borrowing from family, friends or credit cards. Perhaps you've even borrowed from a bank or kick-started your business with money from an angel investor you know.

Now that your company has some legs, you're looking for an infusion of serious cash so you can enter a period of major growth. Should you seek out a venture capital investment? And if you do, what are the implications? Will you lose control of your company? Will you have to sell it down the road?

Venture capital is actually a common funding source for high-growth companies. In fact, 63 current Utah businesses have received more than $550 million from venture funds within the Utah Fund of Funds portfolio, according to Matt Peterson, vice president of the fund. The total number of Utah companies receiving VC investments is even higher.

Not Without a Price

While you won't have to sell your soul, venture capital investments do come with a price. Specifically, any VC firm that invests in your company will take a percentage of the ownership in return for the investment.

Just how much of your company will the investors want?

"The venture guys will typically take somewhere between 20 to 40 percent ownership, depending upon how clean your capitalization table is and if there are any other venture firms involved," says Chris Stone, managing director of Epic Ventures.

"Sometimes we get called vulture capitalists and that is all very entertaining, but the reality is, if you are going to take our money we have to have equity in your company," he says.

By taking a VC investment, you are essentially sharing your company with the VC firm. "These people will be owners of the company. They will have a seat or seats on the board of directors. They're going to have influence in the way you run your company, and they are going to require a lot more out of you than another investor might require, because they have investors themselves and they need to be able to justify the investment to their own investors," Peterson explains.

VC influence can be a good thing--unless you are a control freak. Peterson says the VC firm can have a huge impact on your company, because they will help you find your management team and work with you on creating partnerships. They will also work with you on your money needs.

Do Your Homework

Venture capital firms come in various flavors. Some are early-stage investors like Epic Ventures, while others focus on...