Drive-By Deal

What Is a Drive-By Deal?

A drive-by deal is a shoptalk term alluding to a venture capitalist (VC) who invests in a startup fully intent on executing an exceptionally quick exit strategy, ideally by method of a initial public offering (IPO) on a stock exchange.

Grasping a Drive-By Deal

VCs ordinarily invest in businesses over the long term. Regularly it takes about five to eight years for a promising beginning phase venture to solidify its path and either get bought out or open up to the world by listing on a stock exchange. During this precarious interaction, VCs will function as partners, nursing youthful startups through their developing torments.

Having an exit strategy is key. By and large, VCs possibly really get compensated when the startup they invested in is sold on, whether that be through an initial public offering (IPO) or being acquired by another company.

Whenever the situation allows, some VCs will actively try to show up as of now sooner than others. Periodically, a startup could have substantial plans to float on a stock exchange yet first need quick access to capital. On the off chance that the IPO desires are legitimate, VCs could be expected to jump as it empowers them to make a quick buck without participating in all the demanding activity they are normally required to embrace.

Whenever opportunities of this nature introduce themselves, the VC takes practically zero active job in the management and monitoring of the startup. All things considered, the goal is to increase the size of the investment by quickly getting the venture listed or finding it an admirer.

Benefits and Disadvantages of a Drive-By Deal

Drive-by VC deals might be viewed as profitable for both the startup company and the VC: they permit a company to help its growth at an exceptionally high rate right off the bat in its life cycle while empowering the investors to quickly set their capital back up to reinvest in new tasks without being tied up for a really long time at a time.

However now and again productive for all gatherings, drive-by deals as a general rule are seen distrustfully. Pundits say these types of transactions bring about companies being pushed towards an IPO, regardless of not being objectively ready for such a big event.

VCs are in the business of bringing in money for their investors and, when all goes to plan, the promising ventures they infuse capital into, too. In any case, in the event that it is a fleeting undertaking and crushing a profit out of the startup quickly turns into the main objective, it very well may be contended that their sustaining perspective leaves the window.

Unexpectedly, the VC has little motivation to care about the long-term welfare of the business. Getting to the guaranteed land of IPOs as quickly as conceivable turns into the principal mission, whether or not the company and its founders succeed or fail promptly a short time later.

Venture capitalists generally bring in money for their investors and themselves when their investment in a startup company is sold or acquired.

History of Drive-By Deals

The term "drive-by" investing was first begat during the 1990s as venture capitalists spent truckloads of cash on technology startups, particularly encompassing the dot-com craze. The term alludes to the common practice at the hour of angel investors and VCs consenting to fund beginning phase startup companies without doing any real due diligence to check in the event that the company's business plan and management team was a beneficial and promising investment.

During the technology boom, VCs were restless to fund the next big company before their rivals. Drive-by investing happened on the grounds that they accepted that they needed more opportunity to get their work done.

Numerous investors got singed after the website bubble burst in the mid 2000s, provoking this quick and dirty VC investing to fall undesirable. That to a great extent stayed the case until the late 2010s, when digital currency Bitcoin and blockchain- related startups started generating a ton of buzz. The fervor encompassing this emerging technology asset class drove some VCs to foolishly act. Yet again this was spurred by fear that not investing quickly would lead them to pass up the next big thing.

Highlights

• Venture capitalists normally hold the hands of youthful entrepreneurs with new businesses.
• Drive-by deals turned out to be less popular after the website bubble burst during the 2000s.
• The term "drive-by" investing was first authored around the hour of the website frenzy, when venture capitalists indiscriminately spent truckloads of cash on technology startups.
• Pundits say drive-by deals bring about VCs pushing companies toward an IPO, even however they are not completely prepared.
• A drive-by deal is a shoptalk term alluding to a venture capitalist (VC) who invests in a startup in light of a quick exit strategy.