DEFINITION of 'Drive-By Deal'

A drive-by deal is a slang term referring to a deal in which a venture capitalist (VC) invests in a startup with the goal of a very quick exit strategy. The venture capitalist takes little to no active role in the management and monitoring of the startup, but instead seeks to increase the size of his investment by quickly finding a suitor to acquire the new venture, or else to speed it through to an initial public offering (IPO). A "drive-by VC" is thus a venture capitalist who engages in this type of deal.

Critics say a drive-by deal results in companies which are pushed towards an IPO even though they are not objectively ready - and all because the VC wants to get its money out, not necessarily caring if the busines itself (and its founders) ultimately succeeds or fails.


A drive-by venture capital deal involves investment in a start-up company where the VC seeks the shortest possible time to exit, ideally by way of an IPO on a stock exchange. Drive-by VC deals may be seen as advantageous for both the start-up company and the venture capital firm, since it allows a company to boost its growth at a very high rate early on in its life cycle and at the same time allows the investors to get back their capital quickly in order to re-invest in new projects without being tied up for years at a atime. However, critics argue that drive-by deals can ultimately lead to unsustainable growth, as the VC firm can pressure the start-up can go public before it is fully prepared. The VC also does not necessarily care about the viability or success of a company or its products & services after the exit has been achieved.

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 angel investors and venture capitalists agreeing to fund early stage startup companies without doing any real due diligence to verify if the firm’s business plan and management team was a worthwhile and promising investment. During the technology boom, VCs were anxious to fund the next big company before their competitors. Drive-by investing occurred because they believed that they didn’t have enough time to do their due diligence. After the dot-com bubble burst in the early 2000s, this type of quick and dirty VC investing fell out of favor as many investors got burned when the sector collapsed. Still, we have seen a resurgance of this style of investing during the late 2010s as Bitcoin and blockchain-related startups have attracted the interest of VCs who don't want to miss out on the next big thing.

  1. Startup

    A startup is a company that is in the first stage of its operations.
  2. Startup Capital

    Startup capital is money required to launch a new business, whether ...
  3. Venture Capital

    Venture Capital is money provided by investors to startup firms ...
  4. Adventure Capitalist

    An adventure capitalist is an investor who backs higher-risk ...
  5. Diluted Founders

    Diluted founders is a term used by venture capitalists to describe ...
  6. Venture-Capital-Backed IPO

    A venture-capital-backed IPO refers to selling to the public ...
Related Articles
  1. Personal Finance

    How to become a venture capital associate

    Venture capital analysts are junior members at VC firms, but they typically receive compensation that is higher than other finance analyst positions.
  2. Small Business

    Who are Venture Capitalists?

    Venture capital investment firms can provide the seed money for high-risk, start-up companies. People called venture capitalists run these firms, and make the investment decisions.
  3. Small Business

    How Venture Capital Will Change in 2016

    Venture capitalists face a tech bubble on the horizon, along with an influx of new non-traditional investors via Wall Street and crowdfunding platforms.
  4. Investing

    What's the Next Big Thing for Venture Capital? (GOOG, FB)

    Flush with a huge inflow of funds, venture capital firms are cautious about what startups to back. What new technologies are drawing the most VC funding?
  5. Small Business

    5 Questions to Ask Before Investing in a Startup

    Investing in start-ups can be profitable but investors need to do their homework before diving in.
  6. Investing

    How venture capitalists make investment choices

    In order to increase your odds for receiving funding as an entrepreneur or start-up business, here are some criteria considered by venture capitalists.
  7. Small Business

    Does Your Startup Need Venture Capital Money?

    Venture capital funding provides capital to grow a business. However, entrepreneurs will also lose some control over business decisions.
  8. Investing

    Will Tech Stocks Survive Higher Interest Rates? (AAPL, GOOG)

    Learn why large tech companies such as Apple and Google are likely to not be impacted by interest rate increases, but newer tech startups could have problems.
  9. Tech

    Germany Tech Startups: Keep Them On Your Radar

    Many German companies, which are eager to catch up with the rest of the world by entering the digital age, are investing in tech startups.
  10. Tech

    Are High Valuations In Silicon Valley Over?

    Silicon Valley valuations, which hit the roof earlier this year, are coming down to earth. What caused the rise? And, what brought about their downfall?
  1. What exactly is a startup?

    Do you want to form your own startup when you have a new business idea? Here is everything you need to know about the startup. ... Read Answer >>
  2. What type of funding options are available to a private company?

    Understand how private companies can obtain financing for startup, growth or expansion projects, and learn how this differs ... Read Answer >>
  3. What are the primary advantages of forming a joint venture?

    Understand what the advantages of a joint venture are and discover what make this business strategy a good alternative to ... Read Answer >>
  4. What is the difference between the equity method and the proportional consolidation ...

    Discover the differences between the equity method and the proportional consolidation method of joint venture accounting, ... Read Answer >>
Trading Center