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Saturday, May 01, 2004

How VCs earn their keep via Knowledge@Wharton

If a company borrows from a bank and the terms are similar, it does not matter what bank it gets the money from. In seeking venture capital investment, however, a company is hungry not just for cash but also for the venture firm’s "reputation and access to a network of relationships--with customers, suppliers, investments bankers and other important constituents in the universe that the entrepreneur cares about,"Reputable venture capital firms also play an information-brokerage role that is vital to young companies. In their early stages, companies are insecure and opt for secrecy to protect their competitive position. Venture capitalists, in their role as trusted intermediaries, can act in a variety of ways on behalf of the company--from assisting in recruiting executive officers to striking up strategic alliances.

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