Venture capitalists.
Harold,
I'm certainly not an expert on venture capitalists, but I do know what they do and what their goals are. Venture capitalists lend money primarily to new companies that are in need of cash to sustain operations, either for production, research, or other corporate expenses. Often times, banks will not lend these companies money because they haven't been in business long enough, do not have an established track record, or have weak financial resources. To offset the high risk, venture capitalists require a fairly high rate of return for the money they lend and usually require that the company give them equity, stock options, or both, and sometimes a seat on the board of directors. In short, venture capitalists offer money to companies that can't get loans elsewhere in exchange for a very high rate of return.
I don't know the answer to your question about whether companies that hire venture capitalists have a higher tendency to get bought out, but I would think the answer is no. A company becomes a buyout target when another company wants their products, technology, etc, and they think the acquisition will add value to the acquiring company. This is true even if a venture capitalist didn't lend them money so I don't think it has any impact on the likelihood of a company being bought out.
I also don't think you can generalize that a stock is a good buy simply because they are borrowing money from a venture capitalist. You should look at the same things that you normally look at before investing in that company.
Dan |
