20.9 Speke Septima Limited was started up three years ago to market a range of designer kitchen products. The company has been very successful, but now needs finance to expand into overseas markets. The directors have discussed a range of financing options, and have reached the tentative conclusion that they should approach a venture capital firm. In outline, they propose to sell 30% of the company in exchange for an equity investment of £3 million, and a seat on Speke Septima’s board. They have asked you, a financial adviser, to identify any potential drawbacks in entering into a venture capital arrangement of the type proposed.
Identify and describe drawbacks to the proposed venture capital arrangement.