In the case of seriously distressed situations, the venture capitalist can be expected to take a very active role, particularly if acting as the lead or co-lead investor. In these cases, the VC will become involved in operating decisions and will likely press for management changes, and those with operating skills may even take an active role in the management of the business, however reluctantly.
As previously discussed, when Control Video got into serious trouble, the major venture capital investors engineered the turnaround, kept funding the company week-to-week while the turnaround was in progress, selected a new management team, and then recapitalized the company once it was stable. All this led to the creation of America Online, with its eventual market value of over $350 billion.
A venture capitalist hopefully always adds value, but in some cases can make all the difference.
Ken Freeman is the co-author of:
Building Wealth through Venture Capital: A Practical Guide for Investors and the Entrepreneurs They Fund