What Is a Drive-By Deal?

A drive-by deal is a slang term referring to a venture capitalist (VC) who invests in a startup with the goal of executing a very quick 澳洲幸运5开奖号码历史查询:exit strategy, ideally by way of an 澳洲幸运5开奖号码历史查询:initial public offering (IPO) on a stock exchange. 

Understanding a Drive-By Deal

VCs usually invest in businesses over the long term. Normally it takes roughly five to eight years for a promising early-stage venture to cement its path and either get bought out or 澳洲幸运5开奖号码历史查询:go public by listing on a stock exchange. During this tricky process, VCs wi✃ll function as partners, nursing young startups through their growing pains.

Having an exit strategy is key. In many cases, VCs only really get paid when the startup they invested in is sold on, whether that be through an initial public offering (IPO) or being acquired by another company.

When possible, some VCs will actively seek to arrive at this point sooner than others. Occasionally, a startup might have concrete plans to float on a stock exchange but first need quick access to capital. If the IPO ambiti🐽ons are valid, VCs could be expected to pounce as it enables them to make a quick buck without having to engage in all the strenuous activity they are usually required to undertake.

When opportunities of this nature present themselves, the VCꦆ takes little to no active role in the management and monitoring of the startup. Instead, the goal is to increase the size of the investment by quickly getting the venture listed or finding it a suitor.

Advantages and Disadvantages of a Drive-By Deal

Drive-by VC deals may be seen as advantageous for both the startup company and the VC: they allow a company to boost its growth at a very high rate early on in its 澳洲幸运5开奖号码历史查询:life cycle while enabling the 澳洲幸运5开奖号码历史查询:investors to quickly get their capital back in order to reinvest in new projects without being tied up for years at a time.𒁃 

Though sometimes fruitful for all parties, drive-by deals more often than not are viewed skeptically. Critics say these types of 澳洲幸运5开奖号码历史查询:transactions result in companies being pushed towards an I✃PO, despite not being objectively ready for such a big evenᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚt.

VCs are in the business of making money for their investors and, when all goes to plan, the promising ventures they inject capital into, too. However, if it is a short-lived affair and squeezing a profit out of the startup swiftly becomes the only objective, it could be a🐷rgued that their nurturing aspect goes out of the window.

Suddenly, the VC has little reason to care about the long-term welfare of the business. Getting to the promised land of IPOs as 💙quickly as possible becomes the maꦓin mission, regardless of whether the company and its founders succeed or fail immediately afterward.

History of Drive-By Deals

The term "drive-by" investing was first coined in the mid-1990s as venture capitalists poured money into technology startups, especially surrounding the dot-com craze. The term refers to the common practice at the time of 澳洲幸运5开奖号码历史查询:angel investors and VCs agreeing to fund early-stage startup companies without doing any real 澳洲幸运5开奖号码历史查询:due diligence to verify if the firm's business plan and managem🧸ent team was a worthwhile and promising investment. 

During the technology boom, VCs were anxious to fund the n🍷ext big company before their competitors. Drive-by investing occurred because they believed that they didn't have enough time to do their homework.

Many investors got burned after the dot-com bubble burst in the early 2000s, prompting this quick and dirty VC investing to fall out of favor. That largely remained the case until the late 2010s, when 澳洲幸运5开奖号码历史查询:digital currency Bitcoin and 澳洲幸运5开奖号码历史查询:blockchain-related startups began generating a lot of buzz. The excitement surrounding this emerging technology 澳洲幸运5开奖号码历史查询:asset class led some VCs to act rec🦩klessly. Once again, this was motivated by fear that not investing promptly would lead them to miss out on the next big thing.