Pre-Emptive Financing

Rebecca Buckman has an interesting article in the WSJ titled “Silicon Valley Start-Ups See Cash Everywhere.” She detailed a new phenomenon called “pre-emptive financing” that has become more common over the past several months. She details the phenomenon:

Pre-emptive financing happens when a venture capitalist seeks out a promising start-up business and offers it money out of the blue, before the company tries to raise a second or third round of cash. If the offer is good enough, in theory, the venture investor will snag a piece of the company quickly, thus avoiding a costly bidding war that could erupt later once the company says publicly it is looking for cash and attracts several suitors.

According to VentureOne pre-money valuations of companies have soared over 50% over the last couple of years. The pre-emptive financing events seek to get before other investors compete for the business.

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