Below is a list of frequently asked questions about Virginia Capital Partners. As an additional resource, we also have provided frequently asked questions about the Private Equity industry.

What is a typical investment size?

We are comfortable investing from $500,000 to $10 million in a given transaction. With other like-minded partners we have invested more than $20 million in one opportunity.

In what industries does Virginia Capital like to invest?

We have historically invested in companies in the healthcare, media, communications, financial services, consumer and business services industries. However, we will consider opportunities in any growing business that meets our other criteria. Visit our Investment Criteria to learn more.

What stage investment is preferable at Virginia Capital?

Virginia Capital Partners manages a family of venture capital, growth capital and private equity funds. Virginia Capital's funds are used to start, grow or buy businesses - we are indifferent to the type of transaction or the reason for the capital need. Generally speaking, we prefer to invest in companies that can grow at least 15% per year and are either profitable or can become profitable soon after our capital injection. Specifically, our investments can range from venture capital for a startup to growth capital to support expansion of an existing business to private equity for a management buyout. Visit our Investment Stages summary to learn more.

Are Virginia Capital's funds committed? Or are you pressured into raising money from other sources?

Virginia Capital's funds are in place and are committed to a series of limited partnerships that are managed by Virginia Capital Partners, the general partner since 1996. Our funds are committed for twenty years providing us with a near permanent capital base and an investment horizon that borders on indefinite. We are happy to provide bank references.

Will Virginia Capital co-invest with others?

We are typically the first institutional investor in our portfolio companies. We frequently the only institutional investor and we typically prefer to be the lead investor -- but we are happy to work with other like-minded VC investors. Historically we have been more comfortable investing with family office groups and other sources of patient capital rather than other venture capital or private equity groups.

Does Virginia Capital prefer to have control of the company?

We are indifferent to our percentage interest. We manage our relationships the same if we owned 5% or 65%. The bottom line is that Virginia Capital is comfortable owning either a minority or majority stake.

In any event Virginia Capital is not interested in taking operational control. Our goal is to back strong management teams who run their companies on a day-to-day basis. We partner with outstanding entrepreneurs who are looking for a both equity capital and a trusted business partner. Our goal is to be a trusted advisor and counselor on key financial and strategic decisions; typically through active participation on the Board of Directors. We have considerable financial, legal, tax and strategic insights and prefer to play a key role in these complex decisions. Otherwise, we leave the day-to-day decision making to management.

What is Virginia Capital's geographic preference?

We prefer to invest close to home because that is where our connections are. We are better business partners because we can provide meaningful access to a broad array of contacts through fifteen years and three dozen other portfolio companies. We focus on growing companies in the South Atlantic region of the U.S., typically within drive time of our Richmond, Virginia office.

How long does it take to close an investment?

We have developed a process that enables us to move as quickly as needed to close an investment. Typically, we can issue a commitment within two weeks and close the investment within an additional four to eight weeks thereafter. But we have no rush to close. We frequently think of an investment partnership like a "financial marriage" -- but unlike a typical marriage, business partners can't get a "no fault divorce". We use our diligence process as a courtship to build meaningful personal relationships with our management partners and to provides them plenty of time to "check us out."

Who makes the investment decision? What is the process?

Someone on our payroll does all of the work with our portfolio companies. We believe this provides us with better insight and makes us better partners. We don't use outside accounting, legal or investment banking advisors. This also preserves confidentiality. The Partners at Virginia Capital make each decision. One Partner leads the effort in each new investment opportunity and is responsible for all due diligence, legal documentation and ongoing Board representation related to the investment.

How does Virginia Capital work with a company after closing the investment?

We partner with outstanding entrepreneurs who are looking for both an equity capital and a trusted business partner. Our goal is to be a trusted advisor and counselor on key financial and strategic decisions; typically through active participation on the Board of Directors. We have considerable financial, legal, tax and strategic insights and prefer to play a key role in these complex decisions. Otherwise, we leave the day-to-day decision making to management. To learn more about how we pair with business management, check out our Philosophy.

In what cities has Virginia Capital invested?

Virginia Capital has invested venture capital, growth capital and/or private equity in the following areas of Virginia: Richmond, Charlottesville, Norfolk, Roanoke, Virginia Beach, Hampton Roads, Leesburg, McLean, Tysons Corner, Fairfax, Great Falls, Loudon, Fauquier, Henrico, Chesterfield, Hanover, Blacksburg, Bristol, Abingdon, South Boston, Franklin, Suffolk, Bedford, King William, King and Queen, Essex, Lunenburg, Lynchburg, Albemarle, Goochland, Williamsburg, Winchester, Harrisonburg, Christiansburg. Virginia Capital has also invested venture capital, growth capital and/or private equity in the following areas of Maryland: Baltimore and Annapolis. Virginia Capital has also invested venture capital, growth capital and/or private equity in the following areas of North Carolina: Raleigh, Cary, Durham, Winston Salem, Charlotte, Fayetteville, Wilmington, Greensboro, Greenville, Wilson, Statesville, Gastonia, Concord, Shelby, Asheville, Beaufort, Moorehead City, New Bern, Chapel Hill, Burlington, Lexington. Virginia Capital has also invested venture capital, growth capital and private equity in the following South Carolina areas: Charleston, Columbia, Greenville, and Spartanburg.

Does Virginia Capital maintain a blog, twitter or facebook page?

Yes. We maintain a blog called Freshwater Investor through which we publish our thoughts on current topics affecting venture capital, private equity and small businesses. To visit, click here: Virginia Capital Blog. We also maintain a Facebook Page and a Twitter feed, @VaCapPartners.

What is Virginia Capital's holding period for an investment?

Our holding period is indefinite. Virginia Capital Partners is an exceptionally steadfast business partner -- our funds have a 20 year duration. With a near permanent capital base, we have an investment horizon that borders on indefinite. Virginia Capital can patiently wait to realize our return until the time is perfect for both the company and the market.

Is your preferred exit an IPO or sale?

We have no preferred exit.

What expertise does Virginia Capital bring?

Our partners have extensive financial, tax, legal and regulatory experience. We are able to obtain long-term, non-recourse bank debt for our portfolio companies at attractive terms. We frequently minimize adverse tax implications through careful planning (for example, avoiding higher tax rates associated with depreciation recapture by carefully negotiating the allocation of purchase price early in a sales process). We can quickly cut through the legal mumbo-jumbo of many proposed contracts to help our CEOs decide whether there is enough common interest to continue discussions. We believe our biggest value added is our carefully refined sales process when the time is appropriate to sell a portfolio company. Learn more about our Exit Strategy.

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Private Equity

What are venture capital, growth capital & private equity?

Growth Capital generally refers to professionally managed, dedicated funds that invest in mature but growing businesses. Unlike a traditional private equity fund, most growth capital investors take a minority stake in their portfolio companies.

Venture Capital generally refers to professionally managed, dedicated pools of capital that focus on equity investments in privately held, high-growth companies—usually to firms with a limited track record but with the expectation of substantial growth. Venture capital (sometimes called VC) funds invest in companies that are typically in the formative or early stages of their corporate development. Venture capital investments are considered a private market investment. The VC may provide both funding and varying degrees of managerial and technical expertise.

Private Equity historically referred to professionally managed, dedicated pools of capital that focus on equity investments in more mature or distressed companies where the funding source owns a considerable stake, possibly a controlling stake. These funds were previously referred to as buyout funds or sometimes leveraged buyout funds.

The term "private equity" has evolved to refer to the entire range of private investments that are not freely tradable on public stock markets including venture capital, growth capital and buyouts. Private equity investments consist of investments in the equity securities and other forms of long-term capital of private businesses, and the holding of stock in unlisted companies—companies that are not quoted on a stock exchange. Private equity includes organizations devoted to VC, leveraged buyouts, growth capital and distressed investments.

For the following discussion the term "Private Equity" refers generally to any VC, growth capital or buyout firm.

How are private equity firms organized?

Private equity firms establish funds (typically limited partnerships) that raise capital from investors (traditionally large institutional investors—who are referred to as limited partners, or LPs). The LPs provide the capital for a limited period of time and the private equity firm's managing partners—known as general partners, or GPs—invest their own capital along with the capital raised from investors. The general partners make equity investments for the partnership in companies they believe can achieve significantly greater growth and profitability with the right infusion of talent and capital.

Private equity partnerships typically provide for a three to five year investment period (during which the fund may make new investments) and a three to five year portfolio wind down phase where the partners seek to liquidate their investments. Because the exit timing is predetermined, depending upon prevailing market conditions, a traditional private equity fund may need to sell an investment in poor market conditions. Also because of the time limited nature of these funds and their self liquidating nature, a prospective portfolio company cannot be sure that the fund will be in business after several years (because the private equity fund is also dependent upon its ability to raise new money to survive, otherwise key people typically leave seeking greener pastures elsewhere).

Virginia Capital is, of course, organized quite differently. Our funds are committed for another twenty years and we have no need to raise further capital. As a result, turnover of key partners has been minimal (as has turnover of our portfolio company senior executives). We believe our extended duration affords us the patience to work with our portfolio companies to select an exit opportunity when both the management and Mr. Market are ready.

What's the difference between private equity funds and hedge funds?

Private equity often is confused with hedge funds. But the two forms of investment differ in important ways: Private equity seeks to create value over the long-term; hedge funds typically have a much shorter time horizon. Private equity funds are typically organized with 10 year lives, so they cannot be forced to sell an investment within those 10 years. Hedge funds are pools of capital that usually invest in publicly stocks, bonds, or commodities. Typically, hedge funds do not focus on investing in private companies - although the allocation to private investments has picked up tremendously in recent years . Most hedge funds are structured so that their investors can withdraw capital on relatively short notice and, as a result, many conservative head fund managers believe that private equity investments aren't suitable for hedge fund partnerships. Some hedge funds entered the private equity business, providing loans and equity to mid-sized companies; but this has typically been a "side line" compared to their main stay of trading stocks, bonds and commodities. Indeed, many of the most active privately investing hedge funds were caught in a liquidity squeeze in the Great Recession.

Private equity funds invest in companies with the intent of owning and operating them for several years or more. The goal is to grow the companies and strengthen their performance. Private equity firms typically create value by improving the operations, governance, capital structure, and strategic position of the companies in which they invest.

In contrast, hedge funds are a loosely-defined category of investment pools that, like a retail mutual fund, principally invest in publicly traded securities, currencies or commodities. While most mutual funds typically own "long" positions in securities, (that is, they own the security with the hope it will rise in value), a hedge fund may take "short" positions (betting that a company's stock price will fall), and engage in many more complex trading strategies, including futures trading, swaps and derivative contracts. Almost all hedge funds use some form of leverage which further increases the risk associated with making private equity investments.

What's the difference between private equity and investment banks?

Investment banks are agents or advisors hired to raise capital. Investment bankers are paid a fee for arranging the capital source. Typically the investment bank does not invest its own capital in the transaction; it merely serves as an agent. While some investment banking firms have private equity funds that are affiliated, this is not their main business. Private equity firms invest their own capital and most are not involved in the investment banking business.

What is a merchant bank?

A merchant bank is typically defined as an investment bank that occasionally invests its capital and that of selected clients in some of its banking transactions. This was especially true of long established banking houses in Europe.

What is a "pledge fund"?

During the credit boom that preceded the Great Recession, several new breeds of private investors sprang up. All of these groups shared a common trait: they had no money. These groups were typically created by former investment bankers who had relationships with private investors who wished to invest in private equity situations. These private investors had no interest in "getting their hands dirty" and instead sought to hire someone to source and close new private equity investments on their behalf. Nevertheless, there was no formal fund in place and any private equity investment by the group was subject to each member's consent to make the investment. As long as performance met expectations or the investors remained attracted to risk assets, these groups could continue to invest. The Great Recession was the undoing of most of these arrangements which went under the ironic name "fund-less sponsor" or the more accurate "pledge fund".

Generally a pledge fund or fund-less sponsor is a loose affiliation of investors who co-invest in transactions that the investors choose to invest in. Some of these groups hire a manager and the investors share the cost of the manager; others work under a less formal arrangement whereby investors share transactions on a deal-by-deal basis and each investor chooses whether or not to participate in each deal.

How is a mezzanine fund different from other private equity funds?

A mezzanine fund is a debt fund that generates substantially all of its returns through above market interest rates (typically 12% to 14%). These loans are typically subordinated in liquidation preference to existing banks (hence the term subordinated debt), but most mezzanine funds seek a junior lien on the assets. These fund managers think and act like lenders (many adopting the classic banker's law: "your first loss is your best loss"). Since the loan is "above" the equity holders in a liquidation but below the bank debt it is sometimes called "mezzanine" debt referring to the layer above the bottom theater seating but not at the top layer of seating either. Most traditional private equity funds including venture capital, growth capital and buyout funds do not structure their investments as loans and think more like owners of the business rather than lenders.

What is an angel investor?

Angel investors are typically successful entrepreneurs and executives who invest their own capital in small businesses. Typically each investor invests in areas well-known to him and usually close to his hometown, although small groups of angels have formed "band of angel funds" to pool their resources. A new trend are the so-called "super-angels" who generated enough wealth to fund deals that would require resources of a syndicate of VC's (Peter Theil, co-founder of PayPal and a member of the Forbes 400 richest Americans, is an example. He funded Facebook and LinkedIn).

Should I raise money through an angel investor or venture capital investor?

Much of this decision will relate to personal preference, whether chemistry is positive among the parties, and whether the parties can settle upon mutually agreeable terms. From a statistical point of view, most entrepreneurs are better off raising money from angel investors. According to the Center for Venture Research, angel investors support more than 50,000 new companies each year. According to the National Venture Capital Association, VCs fund about 1,000 new companies each year. So you are fifty times more likely to raise money from angel investors instead of VCs. Also angel investors are located across the country while nearly more than half of the venture capital pool in the U.S. resides in three saltwater ports: San Francisco, New York and Boston.

VCs also concentrate their investments (about 60%) in information-technology (IT) industries. If you're not in a major saltwater port and in the IT business, you might consider an angel investor instead of a VC. The pool of angel capital is about the same size as the professional VC pool (about $20 billion invested annually according to CVR and NVCA research data).

What are the differences between an angel investor and a VC investor?

Angel investors are typically individuals and so the benefits and drawbacks relate to the individual. Some things to think about include whether the angel investor generated his wealth from a small company or large company (better if he understands the unique challenges facing a "boots-on-the-ground" entrepreneur rather than a committee boss at a Fortune 500 company). The angel could be quite valuable if she has prior experience in your industry (benefits could include opening leads for sales with big prospects and recruiting top talent). Other issues include the prospect of the angel's death or divorce, the entrepreneur could end up with a new partner or group of partners with very different agendas. Family issues ("hire my son") could also play into an investment and should be discussed openly in advance. Some angels like to receive some compensation for their time and advice; get these details nailed down in advance.

While the drawbacks of VCs are well publicized (e.g., twenty-something know-it-all Harvard MBAs asking dozens of inane questions), others are less well understood. For example, the typical VC fund is structure as a limited life partnership where all of their investments must be liquidated before a certain date (typically 10 years from the original date of the fund). If you are funded in year 5 of the fund's life, your business has a five year window to grow, succeed and sell. This is a hard deadline. Also some funds are structured with business development professionals who "sell the VC firm" to new prospective portfolio companies. After closing the portfolio company will be working with different professionals in the venture firm. Make sure you get to know these guys, these are your "real business partners" for the next five to ten years.

Also many VC funds use outside advisors for the due diligence investigation including auditors, lawyers, HR consultants and so forth. If so, expect to spend some time educating your VC partners after closing, they will have no institutional memory from the due diligence exercise. VC funds are renowned for their portfolio company CEO turnover. It is so typically that there are several white papers written by VCs on the topic (including "<"Rites of Passage: Managing CEO Transition in Venture-Backed Technology Companies"). Entrepreneurs would be wise to check on management turnover of a VCs portfolio companies. As my mother always said, a zebra doesn't change his stripes, if turnover is a near certainty, you should consider yourself all but fired on closing.

My goals are to raise a VC round and then build a $100 million revenue business and take it public, is this realistic? Why are VCs so skeptical?

Statistically it is pretty challenging to reach any one of those goals. First, the odds of raising venture capital are daunting. Each year about 1,000 new companies get funded by VCs; but this is out of a pool of 5.4 million small businesses with 2 million new businesses created each year--all are looking for capital. This makes the odds of successfully getting into that pool of 1,000 VC backed companies at about the same as drawing four or a kind on a first deal of five card poker or hitting a hole in one in golf.

Second, the odds of reaching $100 million in revenue are nearly as difficult. According to IRS data, there are about 23 million businesses in the U.S., and only 17,000 of them have revenues of more than $100 million (the odds are about the same as drawing a full house on the first deal of a five card poker hand).

Finally, the odds of getting public are even longer. There are only an average of 100 IPOs each year against a pool of 5.6 million employer businesses.... so the odds are almost the same as getting struck by lightening. Perhaps VCs are naturally skeptical, but the statistics seem to bear out their cynicism on these points.

How much money will investors expect the entrepreneur and management to contribute?

Most professional investors want their management committed to the endeavor. That means a huge win if the company succeeds and considerable pain if it fails. This keeps everyone's interests aligned. But how much potential financial pain is enough? Most venture capital and growth capital fund managers look for the entrepreneur to have a material portion of his liquid net worth at risk.

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Founded in 1996, Virginia Capital Partners is one of the oldest venture capital and private equity firms in Virginia. With a twenty-year remaining fund life on Virginia Capital Partners' fund, our portfolio companies have the luxury of a partner with an indefinite investment hold period. Unlike traditional venture capital or private equity funds, which have a three-to-five year investment period, followed by a short "wind down" period; Virginia Capital Partners' investment is essentially permanent capital. As a result, Virginia Capital enables our portfolio companies to take the necessary time to build and grow their businesses without pressure to seek a liquidity event because of a constraint imposed by their investment partners. Virginia Capital Partners has no such constraints.

Virginia Capital Partners is also differentiated from traditional venture capital or private equity firms because of our reliance on our own professionals to complete our due diligence assessment. We don't use outside advisors or consultants. So, unlike many venture capital firms, Virginia Capital Partners professionals perform all of our assessment work. We believe our model ensures prompt response and guarantees confidentiality.

Click the following links learn more about our investment philosophy, our team, our portfolio and our contact info.