investment
Venture capital is private investment in early and high-growth companies with substantial failure risk, usually via preferred shares or convertibles, in exchange for a minority stake and a shot at outsized residual value.
Venture capital underwrites companies that may not have EBITDA, may not have a durable moat yet, and will often need several rounds. Returns are expected to come from a small number of outcomes. NVCA yearbooks and model documents describe the U.S. legal and market machinery that still influences Europe: preferred shares, pre-money valuation, pro rata, and protective provisions.
That is a different product from control private equity. A VC is usually a minority investment with information rights, not an LBO sponsor.
Friends and angels, then notes or SAFEs, then priced seed/A/B. Bridge financing appears when the next priced round is late. Each step rewrites the cap table and dilution.
A €2m seed on a €8m pre-money is 20% sold, before the option pool fight. Three years later a Series B at €40m pre-money looks like success until you model the preference stack and the pool. VC “valuation” is a round price, which may or may not equal fair value under IPEV at the next reporting date.
Founders trade dilution and control for speed and signalling. Funds trade liquidity and governance for upside. Strategic investors in a VC round add a third agenda (distribution, IP, competitive intelligence).
Raising VC for a business that should take growth equity or debt financing. Optimising headline pre-money while giving away a full participating preference. Treating a term sheet as closed.
VC will not make a local services business into a fund-return company. It also creates a cap table that later PE buyers must live with.
Even early companies benefit from a structured financial and commercial layer before they “need” a VDR. The round is faster when the story and the numbers are the same object.