| Venture
Capital |
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Although venture capital can
do the first round, venture capital funds are usually the round of
financing as the company passes the start-up, seed money or first round
of financing. |
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At the venture capital stage,
the company has proven its concept, demonstrated its ability to at least
potentially demonstrate revenues, and the venture capital fund can see a
large return with a viable exit strategy to get its money back. |
| What is
looked for |
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Venture capital investment
criteria are well-known: |
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- Experienced management that
has built businesses before |
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- Valuable, proprietary, high
technology that is 10 times better than existing technology in a large,
rapidly growing market |
| Restrictive
Agreements |
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Typically. venture capitalists
insist on restrictive agreements to protect their investment. |
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These agreements often include
terms such as these: |
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You must take the company
public or buy back the venture capitalist's stock within a certain
period of time. The venture capitalist will want the right to register
and sell his stock in the IPO or thereafter.
You cannot sell your stock without offering the
venture capitalist the chance to participate in the sale and sell his
stock to your buyer.
You cannot sell your stock without giving the venture
capitalist a chance to buy at the same price
Corporate control is also restricted.
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| Knocking Off
Management |
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One little-known tendency of
venture capitalists is to criticize management and believe they could do
better. They then seek to have management removed. I have helped
management overcome these challenges. |
| Vulture
Capitalists |
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Some venture capitalists ask
for agreements that give them a bigger piece of the company if the
company does not meet set targets. |
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Since most ventures come in
behind schedule, the venture capitalist, known here as a "vulture
capitalist," knows that he will inevitably own most of the company
and have management as his slaves. |
| Presentation
and negotiation is the key |
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Given the resources and assets
you have in your business, presentation and packaging of the
presentation is the key to success. |
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Negotiation with venture
capitalists is vital or you will lose control, lose large amounts of
equity and be laced into a straight-jacket of restrictive agreements
that allow them to effectively take over your company |
| Hammering You
on Price |
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Most venture capitalists
naturally seek to cut the best possible deal. They are tough in
negotiations on price. |
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However, since only the
weakest deals succumb to tough negotiations, this may result in the
venture capitalist weeding out the strong and putting the weak into his
portfolio. |
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Venture capitalists will tell
you that 80% of their deals fail. |
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| Questions?
Want to know more? |
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mailto:johnernstlux@yahoo.com |