Before you go and start searching Venture Capital funding you need to know some facts. There are different type of Investors.
Venture Capital Investment Firms - Are usually founded by investors themselves. Some firms work with other investors and banks to fund a certain project. Venture Capital investors will usually ask for 1/3 - 1/2 control of your company, board of director position and in some cases management positions in your company. The goal of a venture capital firm is usually to get their investment money plus 300% return within a 3-5 year period.
Angel Investors - Are similar to Venture Capital Investment firms except they are most interested in the companies success then turning a simple profit. Angel Investors can be firms or private investors that are looking to make a different in the world and also make a profit when the company succeeds. Angel Investors will usually ask for less equity in the company and sometimes will not get involved in the companies operations.
Venture Capital Investment Consultants - Are middle man between Investment firms and the company seeking investment funds. Just like any middle man they are looking to land the deal and turn the profit. There are pros and cons to hiring a consultant. A consultant will usually end up raising the funding a company requires in a considerable amount of time, the con to hiring a consultant is they will seek a commission from the funding the company gets. The commission can range from 20% - 40% from the total amount that was raised. Some consultants will require an initial fee for the work and a commission at the end, and a few may ask for equity in the company for a discounted rate on both the initial fee and commission.
What do you need before raising venture funds?
Private Placement Memorandum - A private placement (or non-public offering) is a funding round of securities which are sold without a initial public offering, usually to a small number of chosen private investors. In the United States, these placements are not subject to the Securities Act of 1933 and do not have to be registered with the Securities and Exchange Commission, although the sale must conform to SEC rules. Private placements may typically consist of stocks, shares or warrants and purchasers are often institutional investors such as banks, insurance companies or pension funds.
It is also known as a legal document stating the objectives, risks and terms of investment involved with a private placement. This includes items such as the financial statements, management biographies, detailed description of the business, etc. An offering memorandum serves to provide buyers with information on the offering and to protect the sellers from the liability associated with selling unregistered securities.
504 or 505 or 506 Form - Is needed to state the actual funding that will be transferred to you with the FCC. Private placements offer privately held companies a means of obtaining financing from investors through the sale of stock without the regulatory burdens, delay, and expense of a public offering and without regard to the prevailing conditions in the public securities market. This is what a sample looks like.
The price to have the document written and drafted by an Attorney can range from $3,000 - $10,000 for private placement and $10,000 - $40,000 for public placement. We recommend Roman Leonov contact telephone (917) 693-7253. He will be able to do a great job and beat any price on the market.
Share Subscription Form - Used when new shares are issued by a corporation and sold to a purchaser, also known as a subscriber. The subscriber executes this document and it is then retained in the corporation's records.
Business Plan - A business plan is a document that summarizes the operational and financial objectives of a business and contains the detailed plans and budgets showing how the objectives are to be realized. Because the business plan contains detailed financial projections, forecasts about your business's performance, and a marketing plan, it's an incredibly useful tool for business planning. We recommend Business Plan Pro software as well as our educational eBook.
U.S. securities laws generally prohibit the offer and sale of securities unless they have been registered under the Securities Act of 1933 and the securities (blue sky) laws of the states in which they are offered. Nevertheless, these laws permit the offer and sale of securities without registration upon compliance with one of the currently available express exemptions from registration. You can read more here.
You can raise unlimited amount of funding every 12 months after the last funding you made for your company.
Venture funding: The consequences
The first thing for you to do, as an entrepreneur, is to actually understand why you ought to go in for venture funding and what it actually means for your start-up.
Expensive capital: For an entrepreneur, venture funding is one of the most expensive capital options. Let me illustrate this point: for a typical early stage start-up, VC funding costs 25-35 per cent of the actual value of the start-up (for an investment of $1 - 3 million). Comparatively, a $ 2 million debt comes at a 10-15 per cent interest rate, much cheaper if you assume the start-up will be worth $10 million in two years. The major challenge faced by many with ambitions of a start-up, is that most banks will not provide $2 million of debt capital to a young entrepreneur. Banks typically look for established entrepreneurs with a proven track record of successful operations, backed by stable cash flows, before they will even consider evaluating a proposal for debt.
Higher returns: The reality of venture funding is that investors participate in this game to get higher returns on their investment. For them, it is a high risk and high reward business. Investors do not invest in your firm out of charity or goodwill. They may like you as an entrepreneur but they believe in your potential to execute, this is important for entrepreneurs to understand. They invest in your business because they believe you have the potential to scale it up, which in turn will give them higher returns, of course!
Size: Venture money is right for you if you are looking to build a big business. Rohit Agarwal, CEO, techTribe, describes 'a big business' as a firm worth $20 million over three to five years, that ideally grows into a $100 million business over five to seven years. In fact, more often than not, I have heard several investors (especially international ones) crib about why entrepreneurs just can't think BIG. Investors look for big opportunities and are not impressed by a small market opportunity, no matter how good the idea may be.
Exit: Your business can go public or be acquired for a very large amount. Remember, investors are investing because of returns that can only be achieved with a successful exit.
Involvement: Venture funding can entail significant involvement from |