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Help me understand this
Old 02-14-2008, 11:37 AM   #1
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Help me understand this

I know this is terribly fundamental, but I'm not sure how venture capital works.
I was reading about a company called Insitu which has just received $25 million from Battery Ventures. There are also two other investors.
Insitu Closes $25 Million Series D from Battery Ventures

My questions are: Is this essentially a loan to be paid back? What is "series D"? Would this now be considered a partnership with Battery Ventures?
Do small companies search for funds from venture capitalists?.....or is it the VC's that search out small companies?

Thanks for helping me learn.
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Something to learn
Old 02-14-2008, 12:09 PM   #2
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Something to learn

Series D is preferred stock paying a dividend. It may include stock options or warrants. You could consider it an interest only loan. It typically wouldn't have voting rights so I wouldn't consider it a partnership, but I assume the covenant would detail the rights of the parties. While they both seek each other out, most come looking for money rather than money looking for them. I believe directors often act as intermediaries in these.
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Old 02-14-2008, 12:14 PM   #3
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No this is in all likelyhood an equity investment. Often venture capital get issued prefered stock so in case the company go bust, the VC get first dibs on selling any intellectual property/asset to get their money back. However, for the most part the VCs will lose 80-90% of their money if they go broke.

Series D means that this is the 4th round of fundings. The other rounds being imaginatively labled Series A, B and C :-).

In general technology companies seek out venture capitalist. Although in the case of somebody like Google (before they went public) probably the VC were pounding down the door please take our money.

Funding for most start ups follows this pattern.
Stage 1: The entrepeneur
Stage 2: The 3 Fs friends, family and fools
Stage 3: Angel Investing (affluent individuals organized to gether)
Stage 4: Venture Capitalist
Stage 5: Acquistion, going public.
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Old 02-14-2008, 01:14 PM   #4
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Ok....this is starting to make more sense now I think. Insitu (as I understand) is still a privately owned company. If/when they go public the VC would be given shares of preferred stock? So I'm assuming the VC expects the company to have a good chance of going public?...and if not they still receive interest on their investment? Am I over simplifying this?
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Old 02-14-2008, 03:25 PM   #5
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Ahh - clifp - thanks for that quick synopsis - I work in the Bay Area and hear all kinds of stuff.....I love the friends, families and fools!
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