Presentation on theme: "Raising Entrepreneurial Capital Chapter 8: Anatomy of a Venture Funding."— Presentation transcript:
Raising Entrepreneurial Capital Chapter 8: Anatomy of a Venture Funding
New Tech's Criteria for Investors Capital Required $1.575 million, $600,000 in venture capital for expansion of an established, profitable company. Would prefer an active investor with knowledge of the computer industry. Geography The closer the investor, the better.
Goals of Investor Meeting Make a strong first impression. Establish good rapport. Be prepared for specific and probing questions on all aspects of the company and the proposal. Know what questions to ask the investor.
Expected questions Your competitive advantage?" Size of your market, and how do you know?" "Why do you think this company has the ability to achieve rapid and sustained growth in such a competitive industry?" "What are your financial forecasts based on? How liquid will the company be during the expansion? What do you expect gross margins to be?"
Negotiating basis Determine opening positions. bottom-line terms and conditions, and acceptable compromises. Consult with your financial advisor and lawyer throughout the process. Think of the investor's point of view when determining their terms and negotiating strategy. Stay open-minded and flexible. Look for common ground with the investor.
Practical lessons Approach negotiations from a win-win perspective while keeping the investor's position in mind as options are considered. Almost everything is up for negotiation. Negotiations may take time and several meetings.
Due diligence requests (1) New Tech's financial statements for the last three years; three years of income tax returns and payment schedules; details of banking arrangements;
Due diligence requests (2) summary (and copies) of the main contracts in place (contracts, leases, patents, insurance policies, mortgage documents, sales or supply contracts, etc.); list of key customers with historical and projected sales data and order backlog, if available; additional industry information on the computer power module market and related technology;
Due diligence requests (3) list of suppliers and backup suppliers (if one of the needs is a specialty product or service); returns and warranty data to assess the quality of the product and to assess any contingent liabilities related to the products; recent appraisals of tangible assets; an organization chart;
Due diligence requests (4) corporate minute books and documents (e.g. articles of incorporation, by-laws); a summary of all outstanding or pending litigation with an accompanying letter from the company's lawyer explaining the expected outcome of each lawsuit; and historical and future budgets along with actual figures (which will be required to assess management's ability to produce accurate forecasts and to determine future expectations).