Business Planning - Creating Plans
Getting Equity Money

Getting Equity Money

What's the #1 reason VC firms say no?
They often aren't impressed by the management team. Ideally they want to see someone in the group who has already participated in a highly successful start-up. Lacking this, they want to see that people with solid and relevant experience are already committed for the key positions.

They are most likely to reject proposals that are still at the idea stage. The later the development stage the firm is in, the greater the chances for funding.

Venture capitalists aren't satisfied with a business that has only moderate profit potential. They are looking for companies that will not only be profitable but have the possibility of quickly developing into a huge business, returning to investors a large multiple on their initial investment.

If your business plan is not well thought out or well presented, venture capitalists aren't going to have confidence in your ability to run the business."

How much equity will I give up?
This primarily depends on what development stage your firm is at and how much money you are seeking relative to how much capital you have already raised. If your firm is up and running and showing profitable sales, and you are looking for additional capital to finance your expansion, you will probably need to give up only a small portion of equity. On the other hand, if your firm is only at the idea stage and the outside investors are going to contribute over 90 percent of the funding, then you will probably have to give up at least half, if not more, of the equity."

What do investors focus on most?
People, people, people.
In seeking equity money from venture capitalists or other outside investors, you will increase your chances of success if you get someone committed to your management team who, if not known personally by a potential investor, at least will have a recognizable name. If you can't manage this, you should consider getting one or more people on your Board of Directors whom potential investors may be familiar with.

Alternately, you can include as exhibits to your plan any positive media clippings you can find, such as items from trade publications, about members of your management team. If you don't have any clippings, try contacting relevant publications to get media coverage-perhaps about your start-up business proposal.