Friday, August 05, 2005

When Capital Goes to the Founders, Not the Company - New York Times

When Capital Goes to the Founders, Not the Company - New York Times: "Rather than wait for eHarmony to go public, which might never happen, or for some bigger company to acquire it, which also might not happen, the company's founders decided to look for venture capitalists willing to cash out some of the stake they and others held in the company.
They had no trouble finding eager venture investors, even though a big chunk of the investment would end up paying for vacation homes and other personal luxuries, rather than building the company.
To many venture capitalists, this kind of deal, known as a 'founder sale,' is generally viewed as a necessary evil, the price of admission for doing a deal with a hot property. An investor would much prefer to see his or her investment used to create a new product, hire new talent or build a sales team - something that would increase a company's odds of succeeding."

Joseph Schumpeter would frown upon this practice...
Post a Comment