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In-Out Privileges

Is your business a revolving door for limited partners? As long as the money is there, don't worry if they come and go as they please.

This story appears in the November 2001 issue of Entrepreneur. Subscribe »

It sounds like a scene from your worst nightmare: Some of your VC investors, feeling the effects of the struggling economy, decide to bail out on your company and sell their stakes to secondary investors you've never heard of. Now there's no telling what the new investors will want from you and your business.

It's understandable that you may fear such a scenario, but there's hardly any reason to panic. True, VCs have been disappointed by returns on their investments, and it's easy to see why: The VC industry saw its first negative return for any 12-month period as of July 2001, according to Venture Economics and the National Venture Capital Association. But that doesn't necessarily mean that venture funds are in dire trouble-or that the businesses they finance will be affected even if the limited partners do want out.

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