A debt instrument offered for purchase by private investors. Normally
with warrants for future stock purchases at fixed prices.
Offer of an equity ownership position or a note which has an option
to convert from debt to equity.
Initial Public Offering (IPO)
A company's first offering of stock to the public.
Joint Venture Partner
An agreement between firms to work together on a project for mutual
Two or more companies combined to achieve greater efficiencies of
scale and productivity. This is accomplished through the elimination
of duplicated plant, equipment, and staff, and the reallocation
of capital assets to increase sales and profits in the enlarged
The act of one corporation acquiring a controlling interest in another
corporation. In an "unfriendly" takeover", the buying
corporation may offer incentives to stockholders such as offering
a price well above the current market value.
A company's progress makes positioning for an Initial Public
Offering viable. Venture funds are used to support the IPO.
Preferred Stock (preferred stock offering)
A preferred stock is a type of capital stock that pays dividends
at a set rate (at the time of issuance). Dividend payments to preferred
holders must be made before common stock dividends can be paid.
Preferred stocks usually do not have voting rights.
The sale of securities to a small group of investors (generally
35 or fewer), which is exempt from SEC registration requirements.
The investors execute an investment letter stating that the securities
are being purchased for investment without a view towards distribution.
An investment banking firm sells securities from the issuing corporation
to the public. A group of firms may from a syndicate to pool the
risk and assure successful distribution of the issue. There are
two types of underwriting arrangements: best efforts and firm commitment.
With best efforts, the underwriters have the option to buy and authority
to sell securities, or if unsuccessful, may cancel the issue and
forgo any fees. This arrangement is more common with speculative
securities and with new companies. With a firm commitment, the underwriters
purchase outright the securities being offered by the issuer.
Determine Whether Venture Capital Is Appropriate
By Providing Services For Hire
Consider Alternative Sources Of Capital:
(Former Successful Entrepreneurs In The Industry)
Find The Right Firm - Ask the right questions
Stage Focus -
e.g. Does the firm invest in companies that have no revenue?
- e.g. Does the firm invest in companies in the Southeast?
- e.g. Does the firm invest in Internet companies?
Size Of Investment
Criteria - e.g. Does the firm invest as little as $500,000?
Return On Investment
Criteria - e.g. Is the market large enough to create a 30% annual
rate of return for investors?
- e.g. Does the firm like to take a roll-up-the-sleeves, "hands-on"
approach or a passive advisory
Prepare A Business Plan
or lose them in the first 2 pages - lead with a tight executive
company's "unfair" advantage - show why you will succeed
in a sea of
Outline a well-defined
product or service and target market
market data and analysis and a cogent plan of attack
that management has the necessary skills to execute its plan
Show uses of
funds and concrete financial goals and milestones
Secure An Introduction
who provide services to venture capital firms and portfolio companies
excited to work
way to your target venture capital firms - elicit professionals'
have them provide an
introduction as a trusted intermediary
and accountants who provide services to the venture community
Grab Firms' Attention
Focus - play to venture capitalists' short attention spans
seasoned managers willing to work on the team
very large future market opportunity
Prove the management
team's ability to adapt rapidly and successfully to a changing
barriers to entry in your market
Make A Powerful Presentation
Get to the point
- Brevity is the soul of wit
Focus on the
market opportunity - Technology is a necessary but not a sufficient
Guide the presentation
toward the management, the market and the money
Follow Up With Additional Information
Bring up any
adverse news or information first and control its dissemination
information when requested
Make it as easy
as possible to get to "yes"
Understand The Valuation Process
major risks in your business
Reduce the perceived
risks to increase the value of your company
return on investment criteria - e.g. discount rates for earlier stage
companies are significantly
higher than for later stage ones
Identify a clearly
definable exit strategy
Internal Rate of Return (IRR) on a multiple of original capital
investment (Horizontal Scale) realized over an assumed period of
years (Vertical Scale).
Survive Due Diligence
Back up sales, revenue and expense claims with documentation
of all contracts
Secure all intellectual
documents with attorneys
Close The Deal
Remember that the deal is not done until the money is in the