Obtaining Venture amp; Growth CapitalChapter 13.ppt

Prof. Dowling - BA 560 - Fall 2002 Obtaining Venture Growth CapitalChapter 13 Dowling BA 560 Fall Term 2006 Obtaining Venture Growth Capital Cover your equity Balance the need for startup and growth capital with preservation of equity The earlier the capital enters, regardless of the source, the more $$$ costly it is Creative bootstrapping strategies can be great preservers of equity Obtaining Venture Growth Capital Considerations Does the venture need outside equity capital? Do the founders want outside equity capital? Who should invest? An equity investment requires that the management team firmly believe that investors can and will add value to the venture. Exhibit 13.1 Obtaining Venture Growth Capital Timing It is unwise for a startup to delay looking for capital since it is likely to take six months or more to raise money. Obtaining Venture Growth Capital Early-stage entrepreneurs need investors who: Are considering new financing proposals and can provide the required level of capital Are interested in companies at the particular growth stage Understand and have a preference for investments in the particular industry Can provide good business advice, moral support Are reputable and ethical and with whom founder can get along Have successful track records of 10 years or more advising and building smaller companies Angel Investors Who are angel investors? Most are self-made entrepreneur millionaires Many are in their 40s and 50s Most are well educated Ninety-five percent have college degrees from four-year colleges Fifty-one percent have graduate degrees (Forty-four percent are in a technical field and thirty-percent percent are in business or economics) Ninety-six percent are men Informal Investors What type of ventures lends themselves to the use of informal investors? Special situations, such as very early financing of high-technology inventors who have not developed a prototype Companies that project high levels of free cash flow within three