Value Added . . .

refers to the knowledge, management advice and related non-monetary input investors sometimes offer a young company. Many venture investors do provide more than money to their portfolio companies. They provide management with the benefit of their experience with emerging growth companies. They also help management by using their contacts in the company’s industry and with other financial sources.

This value added by the venture capitalist can be important but is difficult to measure. In addition to the risk (or downside), value added is the reason some professional venture firms and angels try to charge a management fee to the portfolio company. Entrepreneurs often fail to see the "value added" of a venture capitalist’s advice at first, but many recognize it later when the value of the advice becomes more apparent. See: Consulting Agreements, Geography, Management Agreements.