Venture Capital Pre-Emptive Financing

Bill Sjostrom —  20 March 2006

Today’s W$J has an article on venture capital “pre-emptive financing,� a term I had not heard before. As the article describes:

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.

The article gives the impression that pre-emptive financing is raining on Silicon Valley start-ups (it has a picture to this effect). But I wonder how widespread the phenomenon actually is. A quote from a general partner with IDG Ventures refers to “very high-quality opportunities.� And as I blogged about last October (here), many early-stage start-ups have struggled to get funding. So maybe its only high-quality later-stage start-ups that are seeing the rain.

One response to Venture Capital Pre-Emptive Financing


    We were approached about five or six years ago when I was running my own technology company about funding. They came in and talked to us and looked at our books before ultimately deciding against funding, but they did approach us out of the blue. We’d been in business for about six or seven years at that point and doing what we were doing for about three. I’m not sure if that makes us later-stage. Either way, we didn’t get any funding, but they did come looking.