Can anyone provide info about how it works? Do they provide funds to already ‘established’ companies which need funds? or do they also provide funding to ideas to start a co?
Any contacts in VCs? :halo:
Re: Venture Capital!
NO..venture funding is not for established companies. Established firms if private seek growth or other capital through private equity funds, hedge funds (SPV's) and even individuals. If public, then secondary issuances or spomething called PIPE's. which is bascially a way to invest in public companies through a private vehicle. It also depends on the type of capital you are looking to raise. Equity or Debt. or a combination through convertibles.
What questions do you have. I am in the fund business. Shariah variah ka *******pana sey mera time na waste kariyo, bhaRvay!!
Re: Venture Capital!
My question is how does one secure funding (first round, initial investment ?)? Developing/presenting full fledge “business plan”? or present “idea”?
For example, I’m an employee in a company (not enough money in hand), but I have an idea that I think might result in good product with huge market. Its a complex “tech” product which can’t be developed to a “prototype” level until there is enough money/time to develop it.
Explain what is “Equity or Debt” type of capital? Are they somehow tied with mortgage?
Re: Venture Capital!
You are right to appraoch VC's. You have to be mindful that idea is not simply enough. Remember that VC's, if they like the idea, want to obtain the largest equity share of the company-idea-plan etc, with the least amount of capital outlay.
I will give a scenario in what a good entrepreneur does, vs. a siht head.
Sihthead: Great idea, goes to the VC firm with a business plan, doesn;t have any client, POC is not proven, has no capital to invest of his own and has poor presentation skills.
Outcome: VC if investing, will get 80-90% of the company and will have the entrepreneur earn equity through an earnout model. Three year play, since they have control and milestones don;t meet, they will look to exit the investment through either a down round of financing or through eating it.
Good Entrepreneur: Great Idea, builds a B-plan, has a proof of concept working, a client or two, has put in some monies into the company to atleast have a pre-money valuation worht something. Entrepreneur is looking for a VC that can help through their experience and relationships drive the company into being a player. Client retains let's say 25% of the company, has an exit in mind. public or private. this is what the VC"s love. When the VC is investing it is always good to bring some of your won money through what is called a friends and family round. It is literally that...
To you question of how to go about it. You first need to estbalish a C-corp, then you need to have a shareholde equity plan in placa with your team. You cna own a 100% doesn't matter. You will then need to have a NDA or something that you have a VC or others sign.
Where to find VC's depends on what your prouct /service is...a lot of people hire investment bankers or consultants in the industry to do this. You can also try your luck at industry events and such.
Re: Venture Capital!
Equity financing is when you get someone to take a piece of the company and take in capital.
Debt financing is when you take in capital in terms of a loan. this way you do not give away piece of the company
Convertibles are instruments that allow you to take a loan but the investor has an option to convert that to equity after a certain amount of time at an agreed upon valuation.
Re: Venture Capital!
From what I gathered from your posts above is that I might be a "sihthead entreprenuer" to some extent :D since I am not fortunate enough to have "friends and family" to gather funds, one of the products in my mind doesn't have a "retail" customer or even a "corporate" but more like government+support of insurance cos, but also would require a "new law" to use my product :D, I know that is a FAAAR fetch but theres nothing wrong in 'dreaming' :) .....
Other info I get from your responses is that "equity in idea/plan", "shareholding" is negotiable to certain extent.
Next I would like to know about VCs and contacts (if possible). The product belongs to electronics+mechanical+transportation sectors.
Re: Venture Capital!
NVCA (national venture capital association) might be a good lead. Also, there are tons of VC journals on the internet.
Here are my two cents:
You need a business plan that shows at least 3 things
- Coherent business strategy with a nice executive summary
- Current and projected financials (at least four years)
- Business service or product you are selling
If the idea makes sense, then the Angel VCs will do what is called a “seed financing”
Before they invest, they will ascertain how much money you need and the pre-money valuation (i.e., how much is your company worth before investment). You will need to negotiate tooth and nail with these b@astards to get a proper valuation.
Imagine your company is worth 2mil, and they invest 1mill, then they control 33% of the the equity after investment. So, once negotiatns are done, and investments are made, investment money goeds into your balance sheet’s shareholder’s equity section, meaning they now own a chunk of your company. Typical seed investments are sometimes done at less than a buck, and when the company goes public (for biotechs i know the IPO price averages $9-11, so these fkers make a lot of money when they flip their stock after lock-up)
Most VCs invest with an exit strategy in mind, which is preferably and IPO or an acquisiotn by a public company.
To start your own company, you need to incorporate (or form an LLC-limited liability corp ) your fledgling company (preferably in delaware, low fees and favorable tax considerations). Nowadays, you can avoid the sharks (lawyers) and do it yourself, but i would advise against it if you are a novice entrepreneur.
(ex-investment M&A banker currently in medical school and soon to break in to biotech VC, inshallah)
Re: Venture Capital!
I understand why VCs would want to “grab” most of the company/idea and make most out of it (exit strategy/exIPO etc.) but if you think about it, they are putting their money where my mouth is (did I say that correctly? 
) … what I’m trying to say is that its their job to be a “shark” and its entreprenuer’s job to “hunt” a shark 
I do appreciate your help/comments (dope and PD) :k:
Now, how do I find contact info of these angel VCs, can I just knock on any (trade-related) angel-VC’s door and he’ll listen to me?
Re: Venture Capital!
do they “mortgage” something in business for “loan” purposes?
What exactly are convertible instruments? This particular mode doesn’t look like as appealing and applicable in current situation but would like to know about it.
Re: Venture Capital!
I don’t understand why this guy wants no NDAs when talking to VCs…
Re: Venture Capital!
VC's are not involved in debt transactions per se..VC's invest to get the idea to product, then you need to go for what is called growth capital to take the company to the next level. VC's tend to offload the risj at this point to PE or others as the per-money valuation will be higher than when they invested because your idea has been productized.
You are far frm the convertible option...
You shu go an try to market your idea on a soft basis to people inthe industry that you are developing the idea in.
WE have started 4 emerging market funds in the last year one of them VC with a strict mandate around pharma/biotech... find firms that do transactions in your area of expertise. If you need help, just ask. I will point you in the right direction and take some warrants along the way. ;)
Dope is right mostly, exccept for the LLC part. You would need a c-corp. LLC's can't offer shares.
Re: Venture Capital!
I guess I’m looking for angel investors at this point who’d invest in traffic behavior control, helping insurance companies, reducing human fatalities bla bla. so angel investors who investments in in transportation systems, automobiles, communication systems.
Other product that I want to bring is ‘retail’ product and is like high-tech gadget with household applications.
Sincerely,
Sheikh Chillee
PS: Thanks :k:
Re: Venture Capital!
Yes PD is right - LLC cannot offer shares. i got distracted by the sexy delaware tax laws and forgot we was talking about dem VCs.
Captain, the VCs are not interested in debt financings (as PD mentioned). remember they want control (by being a board member) and ownership of the company. Debt financing doesn't give you that.
Here is a simple breakdown.
-CEO (you), founders and upper management own COMMON STOCK and STOCK OPTIONS
-Employess get stock options
-VCs always get preferred stock. why? because of this thing called "liquidation preferece" and other rights "in front of " common stock.
It's nothing more than a downside protection in case sh!t happens. hence the name "liquidation preference". VCs give a non-negotiable price at which they can fold.
I will only get into details if you are interested.
Convertibles are a weird type of debt, which have a "conversion ratio" and a "conversion price." When a company does a convertible offering (read financing), its convertible bonds are typically priced at 20-30% premium to the then current stock price.
The interest rates are almost always less than other straight debt intruments.
The conversion ratio is a ratio (let's say 10:1) which says once the conversion price is triggered (read stock price=conversion price) , the bonds can be converted to equity (common shares) based on the ratio.
e.g.,
$100 (fpar amount) convertible bond at conversion ratio of 4 to 1 (0.25 or 4:1)
current stock price is $20, conversion price is $25 (which means it's at a premium of 25%). So when stock price reaches $25 or higher, you can convert these fkers at the ratio of 4:1; that is now you will get 4 shares @ $25 (conversion price) each, total worth $100. This valuation of $100 dollars will go up as the stock price goes up.
Advantage: if the stock price goes sky high (lets say >25%), you can still own shares at only a 25% premium. If the stock goes down, you are still getting some healthy interest payments, albeit less than the market rate, but you are nicely hedged against risk.
AMi right PD?
Re: Venture Capital!
Abay O, ye apnay tak rakhay ga ya hamay bhi invest karnay de ga in mae?
Re: Venture Capital!
Please do tell.
Re: Venture Capital!
Let's say you have a fantastic idea. You make Ranting PCG dolls.. You can sell them at $5 a piece and make a revenue of $4 million in 2007. Right now you are making nada. I am an Angel VC. You come to me with your fantabulous idea. I look at your company and i like it, and want to invest. Now, i send you a** term sheet **containing the crucial parts of the deal
1) Pre-money valuation (how much i think company is worth)
2) Purchase price per share i am going to buy your shares with
3) How much we are going to invest
4) How much stock options you can issue to employees and yourselves in the upper echelon
5) liquidation preference
6) Anti-dilution protection provisions.
and some other assorted bunch legal shyt. (redemption rights, rights of first refusal, etc)
Valuation methodology: we will look at other** public** companies that make similar dolls Look at their revenues for 2007.
Let's say madhanee corp. makes same dolls and projects revenues for 2007 to be $100 million (a) and the market capitalization is 150 million (b)(it's a public company, so we know its market cap). We then divide (b) by (a) and get 1.5 -- this we call a revenue multiple.
We then take this multiple and multiply with your company's revenue in 2007 and get 4x1.5 = $6.0 million.
There are 3 other prominent methods of valuation too. But it might outside your scopes.
Anyway, that is how much you company would be worth to us if it were public. Obviously, we will apply a discount since you are a private company (lack of liquidity, meaning your shares dont trade). So, your company is really worth a little less then $6 million. Let's say 4million.
Let's say you agree cuz you got no way out. No one, except us, is buying this asshat idea of a ranting PCG doll. You hd been laughed at and had your ass handed back to you by other VCs.
So, now if i invest $1 million (convertible preferred stock) in your company, my ownership after investment will be 1/(1+4)=20%. And your new company is now worth $ 5 mil.(we call is post-money valuation)
As a CEO you will negotiate UP with us on two things : your stock options (you will want more), and value of company (4 mil).
Now liquidation preference and anti-dilution provisions are all you need to know.
We, as VCs, want to be protected in case PCG slaps a copywright lawsuit on your ass and you go belly up and are forced to sell the assets.. Bank has first claim on your assets, if you took a revolving bank loan. Then we come in and take our $1 million (amount we invested) plus accrued and unpaid dividends out. That is liquidation preference.
Anti-dilution Provisions *are even more simple. I told you we now own **20% **of the company. In a couple of years, lets say you need another financing since your dolls are selling like hotcakes (feminist movement is back in fad). And now your company is now let's say worth *$5 million and you want to raise another $5 million and PD Ventures is willing to invest.
But then look at my ownnership now. i had initially 20% ownership, and now it is reduced to--> my original investment of 1 mil/(previous value of $5+ new inv. by PD of $5)=10% ownership.
I want to be protected against that. There are 2 types of anti-dilution protection. You still want details?? So, since i am investing in your company using convertible preferred stock, i can put all these provisions to protect my ass.
Convertible---> when your company does an IPO, my preferred stocks will convert to common
Preferred--> I get all these preference over the common shyt you and your employees own
stock---> if you dont what this means, then my efforts were in vain:D
Re: Venture Capital!
Whether its 10% or 15% or 20%, its still less than 50% so why would you get sick on these minor changes? How is “board members” stuff decided? Who sits on board?
As per your example, pre-PD investment, your investment was 20% and mine was 80% I still get to call the shots, right?
When an “Angel” does invest, does he commit the duration of funding as well? How does money-transfer take place? My understanding is that they committ to the money and release it per milestone (mutually decided or “majority” decided?)
“stock” what is that? You mean cow, buffalo? j/k I’ve been investing in stocks right after high-school (Pakistan) so I am familiar with most of the terms used.
“Preferred tock” … is it decided in the “term sheet”? All the stock options decided in term sheet to, does that mean that as we grant ‘stock options’ to employees shares of rest of the parties are diluted, right?
Re: Venture Capital!
I was checking out different "angel investors" and one of the websites of AIG (angel investors group) says following items will be required of a 'candidate':
1 Business model
2 Technology
3 Management experience and execution ability
4 Liquidity event
Now, tell me about the 3rd and 4th ones, not everyone who has an 'idea' will have the management experience and since the product is in 'idea/concept' phase how do they determine 'execution ability'?
For the "Liquidity event" what is expected? What are norms ?
Re: Venture Capital!
Three of four are closed already. Fourth fund is a FoF for India. Minimum LP participation at $2M.
There are two questions you have to ask yourself.
- Should I be investing in kaffir land via kaffir instruments?
- Should I kill myself for even having thought of the first question?
and finish with allah knows best. 
Re: Venture Capital!
seems like both of you (who know VCism) are only interested in bio-techs 
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