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If You Accept Venture Capital, You will Lose Control of Your Company

Picture of two teams in a tug of war

After several years of hard work, a client has gained so much traction that venture capitalists – on their own initiative – are asking to make an investment. When the first term sheet arrived, however, the founder / CEO was disappointed – the valuation was fine, but his ability to make significant decisions would be curtailed. I pointed out: If you accept venture capital, you will lose control of your company.

The loss of control does not result from a change in voting power: The VC will own a minority of the corporation’s shares and will control a minority of the seats on the board of directors.

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