How to meet venture capitalists
There are lots of reasons a business might turn to outside investors for capital. That comes up most often with startups, but occasionally even with more established small business. Investors might be friends and family, angel investors, or venture capitalists. And established small businesses will occasionally look for investors, even though that means sharing ownership, instead of standard business credit. Are you still with me?SEE VIDEO BY TOPIC: What Do You Talk About At The VC Meeting
SEE VIDEO BY TOPIC: How to Pitch Venture Capital Investors as a Young EntrepreneurContent:
A Guide To Venture Capital Financings For Startups
If this is your first time registering, please check your inbox for more information about the benefits of your Forbes account and what you can do next! Startups seeking financing often turn to venture capital VC firms. These firms can provide capital; strategic assistance; introductions to potential customers, partners, and employees; and much more.
Venture capital financings are not easy to obtain or close. Entrepreneurs will be better prepared to obtain venture capital financing if they understand the process, the anticipated deal terms, and the potential issues that will arise. In this article we provide an overview of venture capital financings.
Entrepreneurs will be better prepared to obtain VC financing if they understand the process, the To understand the process of obtaining venture financing, it is important to know that venture capitalists typically focus their investment efforts using one or more of the following criteria:.
Before approaching a venture capitalist, try to learn whether his or her focus aligns with your company and its stage of development. The second key point to understand is that VCs get inundated with investment opportunities, many through unsolicited emails.
Almost all of those unsolicited emails are ignored. The best way to get the attention of a VC is to have a warm introduction through a trusted colleague, entrepreneur, or lawyer friendly to the VC.
Startups should also understand that the venture process can be very time consuming—just getting a meeting with a principal of a VC firm can take weeks; followed up with more meetings and conversations; followed by a presentation to all of the partners of the venture capital fund; followed by the issuance and negotiation of a term sheet, with continued due diligence; and finally the drafting and negotiation by lawyers on both sides of numerous legal documents to evidence the investment.
In the rest of this article, we discuss the key issues in negotiating and closing a venture capital round. The term sheet is an important document, as it signals that the VC firm is serious about an investment and wants to proceed to finalize due diligence and prepare definitive legal investment documents.
Before term sheets are issued, most VC firms will have gotten the approval of their investment committee. Term sheets are not a guarantee that a deal will be consummated, but in our experience a high percentage of term sheets that are finalized and signed result in completed financings. Although it is not binding, the term sheet is by far the most important document to negotiate with investors—almost all of the issues that matter will be covered in the term sheet, leaving smaller issues to be resolved in the financing documents that follow.
An entrepreneur should think of the term sheet as the blueprint for the relationship with his or her investor, and be sure to give it plenty of attention. There are varying philosophies on the use and extent of term sheets. One approach is to have an abbreviated short form term sheet in which only the most important points in the deal are covered.
In that way, it is argued, the principals can focus on the major issues and leave side points to the lawyers when they negotiate the definitive financing documents. Another approach to term sheets is the long form approach, where virtually all issues that need to be negotiated are raised, so that the drafting and negotiating of the definitive documents can be quicker and easier.
The drawback of the short form approach is that it will leave many issues to be resolved at the definitive document stage, and if they are not resolved, the parties will have spent extra time and legal expense that could have been avoided if the long form approach had been taken.
In the end, it is usually better for both the investors and the entrepreneur to have a long form comprehensive term sheet, which will mitigate future problems in the definitive document drafting stage. The valuation put on the business is a critical issue for both the entrepreneur and the venture capital investor.
Valuation is negotiable and there is not one right formula or methodology to rely upon. The higher the valuation, the less dilution the entrepreneur will encounter. The founders of a startup typically hold common stock in the company. Angel investors or venture capitalists will usually invest in the company in one of the following forms:.
Venture investors will want to make sure that the founders have incentives to stay and grow the company. Standard vesting for employees is monthly vesting over a month period, with the first 12 months of vesting delayed until 12 months of service are completed, but founders can often negotiate better vesting terms.
In our experience, some vesting in early-stage startups is typically required, but the founders will usually get credit for time spent with the company, as long as a meaningful amount of equity is still subject to vesting.
The makeup of the Board of Directors of the company is important to venture capital investors as well as to the founders. The actual Board composition will be subject to negotiation, factoring in the amount invested, the number of investors, the level of control sought, and the comfort level of the founders.
The liquidation preference is typically expressed as a multiple of the original invested capital, usually at 1x. In situations where the company is particularly risky or the investment climate has turned adverse, investors may insist on a 1.
Participating preferred is relatively rare. If founders are forced to accept participation, they can often negotiate for the participating feature to go away if the VCs have received back some multiple for example, 3x of their investment. After a financing is completed, venture investors will often hold a minority interest in the company. The most sensitive of these veto rights is the one granting the venture investors a blocking right on a sale of the company. Founders sometimes try to mitigate this veto right by arguing that it should not apply in situations where the VC receives a minimum return on its investment often 3x-5x.
In most scenarios, the VCs and the company will work out the veto rights issues down the road. For example, if the company needs cash to continue the business, VCs will likely waive their veto rights over future financings. Abuse of veto rights by investors is rare; word spreads quickly in the venture world, and VCs know that if they are arbitrary in blocking sensible deals, it will adversely affect their reputation with future entrepreneurs.
With weighted average anti-dilution, the more shares that are issued, and the lower the price of the shares, the greater the adjustment to the earlier preferred. Investors will typically agree to specifically exempt from anti-dilution protection certain types of equity issuances, such as incentive equity for employees and other service providers, equity issued in acquiring other companies, and equity issued in connection with bank financings, real estate and equipment leases, and the like.
Investors will normally receive a right to purchase more stock in connection with future equity issuances, to maintain their percentage interest in the company. The options are used to attract and retain employees, advisors, and Board members. VCs will almost always insist that this option pool be included as part of the pre-money valuation of the company, and it is standard to do so. However, founders should realize that any increase in the option pool will come at their expense, reducing their percentage ownership of the company.
Occasionally, VCs request a provision allowing them to cash out of their investment through a redemption feature assuming the company has the cash. A typical redemption provision would say that the investors may, by majority vote at any time starting five years after their investment, elect to be redeemed repurchased at their original purchase price , with payments made over a three-year period in equal installments.
Redemption rights are uncommon, and even in the rare case where they are put in place, they are almost never triggered—but they can give leverage to a VC that wants liquidity.
Series A investors will not typically push for a redemption feature, knowing that such a provision may show up in future rounds of financings to the detriment of the Series A investors. Venture investors will typically get the right to obtain certain financial information, as well as inspection rights with respect to corporate records. The term sheet will typically specify that annual, quarterly, and often monthly financial statements are to be provided, as well as an annual budget or business plan.
The term sheet may specify that the company will be obligated to maintain directors and officers liability insurance, covering the officers and directors of the company in connection with litigation with respect to duties they are performing for the company.
The idea behind this kind of policy is that the cash generated in the event of a tragedy can give the company time to rebound and hire new talent to replace the deceased founder. It is common for investors to have a right of first refusal on any stock to be sold by the founders. This will usually require the founders to first offer the shares to the company, and then to the investors on the same terms as on the proposed sale before they can be sold.
This will give the investors the right to participate on a pro rata basis in a sale by the founders of their shares. These rights are typically exercised when the founder has negotiated a very high price for his or her stock, too high to warrant a purchase pursuant to the right of first refusal. Drag-along rights give the company the right to force all shareholders to participate in and vote for a sale of the company if the sale has been approved by specified groups.
For a Series A financing, the drag-along is typically triggered if approved by the Board of Directors, holders of a majority of the common stock, and holders of a majority of the preferred stock. The idea is not that one group can force another to sell, but rather that if all major constituencies of the company want to sell, all shareholders are required to participate in the sale.
This prevents small shareholders from creating a roadblock to an acquisition by objecting or exercising appraisal or dissenters rights under applicable law. In later-stage deals, drag-alongs may be structured to give the venture investors alone the right to invoke the drag-along right. Drag-along rights present a number of complicated legal and drafting considerations. Demand rights require the company to pursue the registration of its shares, likely also including the shares held by the demanding shareholder.
Piggyback rights give the shareholders the right to include some or all of their shares in a registration statement the company is already filing with the SEC. As a practical matter, registration rights are seldom if ever exercised, and an early-stage startup should not waste a lot of time negotiating the terms they will often be renegotiated anyway by later-stage investors.
Venture investors will usually include a binding provision in the term sheet preventing the company from entering into or negotiating with any other party regarding an investment in the company, for a designated period. This is a reasonable request, as the investors will be investing time, legal fees, and resources to complete the transaction.
The company will want the exclusivity period to be as short as possible. The typical period agreed to is days. The investors will also ask that the company promptly notify the investor of any inquiries or proposals by third parties with respect to financings or sale of the company, and furnish the investor the terms thereof.
The company will need to notify any party that it properly discloses the term sheet to that they are subject to the confidentiality obligation. In the unlikely event of a dispute between the company and the venture investors over the term sheet or the definitive investment documents, it is often beneficial for both the company and the venture investors to resolve the dispute through confidential binding arbitration and not through public litigation.
Any controversy, dispute, or claim arising out of or relating to this term sheet or the definitive investment documents of the parties shall be settled solely and exclusively by confidential binding arbitration in accordance with the commercial arbitration rules of JAMS, in existence at the time of the commencement of the arbitration, before one arbitrator.
The arbitration shall be conducted in [City], [State]. Each party shall bear one-half of the arbitration fees and costs incurred through JAMS. The arbitrator shall not have the right to award punitive damages or speculative damages to either party and shall not have the power to amend this Agreement. The arbitrator shall be required to follow applicable law.
The term sheet will likely provide that all past, present, and future employees and consultants are subject to a Confidentiality and Invention Assignment Agreement.
The purpose of this Agreement is twofold: i to obligate the employee or consultant to keep all confidential information of the company confidential and ii to ensure that any intellectual property developed by the employee or consultant will be deemed solely owned by the company. This obligation in the term sheet is non-controversial although it sometimes turns up in diligence that past employees or consultants who have developed key intellectual property have not signed these agreements, and that can cause significant investor concern.
Term sheets will typically include a commitment from the company to reimburse the reasonable legal fees of the investors plus any due diligence or out of pocket costs incurred, payable at the closing of the transaction. Entrepreneurs should anticipate that the venture investors will perform significant due diligence before they consummate an investment. Some of this will be done by the VCs, and some by lawyers for the VCs. Due Diligence Checklists are available online that go into greater detail.
Venture capital financing can be crucial to the success of a startup. By understanding the key issues in venture financings, entrepreneurs can increase the likelihood of a successful outcome. Richard D. His focus is on investing in Internet and digital media companies, and he was the founder of several Internet companies.
This article was originally published on AllBusiness. I write about startups, venture capital, mergers and acquisitions and Internet companies.
My focus as a venture capitalist is on investing in Internet and Digital Media companies. I am the author of several books on startups and entrepreneurship.
How Venture Capital Works
An award-winning team of journalists, designers, and videographers who tell brand stories through Fast Company's distinctive lens. Leaders who are shaping the future of business in creative ways. New workplaces, new food sources, new medicine--even an entirely new economic system.
Access to funding is one of the most crucial factors for entrepreneurial success. Angel investors and venture capitalists can offer a wealth of collaboration, investment and mentorship opportunities. All you have to do is pitch your business idea. Are you ready for the challenge? Investor Networks Venture Capitalist.
Angels & Venture Capitalists
Invention and innovation drive the U. The popular press is filled with against-all-odds success stories of Silicon Valley entrepreneurs. In these sagas, the entrepreneur is the modern-day cowboy, roaming new industrial frontiers much the same way that earlier Americans explored the West. At his side stands the venture capitalist, a trail-wise sidekick ready to help the hero through all the tight spots—in exchange, of course, for a piece of the action. Arthur Rock, Tommy Davis, Tom Perkins, Eugene Kleiner, and other early venture capitalists are legendary for the parts they played in creating the modern computer industry. Their investing knowledge and operating experience were as valuable as their capital. But as the venture capital business has evolved over the past 30 years, the image of a cowboy with his sidekick has become increasingly outdated. The U. Although the collective imagination romanticizes the industry, separating the popular myths from the current realities is crucial to understanding how this important piece of the U. For entrepreneurs and would-be entrepreneurs , such an analysis may prove especially beneficial.
It's not easy getting funding for your business, particularly the more rarefied form of financing that comes in multi-million dollar packages from Silicon Valley or Silicon Alley venture captial funds. But getting a meeting with a venture capitalist is not as difficult as you might think. If you're smart and strategic and show some drive and intelligence, you're likely to get a response. Coneybeer has these four additional tips to offer:. Show some initiative.
Все очень все. Мы признаем, что у нас есть ТРАНСТЕКСТ, а Танкадо вручает нам шифр-убийцу. Мы вводим ключ и спасаем банк данных.
И вы не хотите ничего предпринять. - Нет. Он подстраховался - передал копию ключа анонимной третьей стороне на тот случай… ну, если с ним что-нибудь случится. Это можно было предвидеть, - подумала Сьюзан.
Поднявшись на подиум, она крикнула: - Директор. На коммутатор поступает сообщение. Фонтейн тотчас повернулся к стене-экрану. Пятнадцать секунд спустя экран ожил. Сначала изображение на экране было смутным, точно смазанным сильным снегопадом, но постепенно оно становилось все четче и четче. Это была цифровая мультимедийная трансляция - всего пять кадров в секунду.
Этот червь, - начал он, - не обычный переродившийся цикл. Это избирательный цикл. Иными словами, это червь со своими пристрастиями. Бринкерхофф открыл рот, собираясь что-то сказать, но Фонтейн движением руки заставил его замолчать. - Самое разрушительное последствие - полное уничтожение всего банка данных, - продолжал Джабба, - но этот червь посложнее. Он стирает только те файлы, которые отвечают определенным параметрам. - Вы хотите сказать, что он не нападет на весь банк данных? - с надеждой спросил Бринкерхофф.
Что-о? - Сьюзан окончательно проснулась. - Прости. Я срочно уезжаю.
Сьюзан осталась стоять. - Коммандер, если вы все еще горите желанием узнать алгоритм Танкадо, то можете заняться этим без. Я хочу уйти. Стратмор глубоко вздохнул.
Он бродил по коридорам шифровалки, тушил бесконечные виртуальные пожары и проклинал слабоумие нерадивых невежд. Чатрукьян знал: как только Джабба узнает, что Стратмор обошел фильтры, разразится скандал. Какая разница? - подумал. - Я должен выполнять свои обязанности.
Пользователь вводил информацию с помощью крошечных контактов, закрепленных на пальцах. Контакты соединялись в определенной последовательности, которую компьютер затем расшифровывал и переводил на нормальный английский.
Ключ к шифру-убийце - это число. - Но, сэр, тут висячие строки. Танкадо - мастер высокого класса, он никогда не оставил бы висячие строки, тем более в таком количестве.
Эти висячие строки, или сироты, обозначают лишние строки программы, никак не связанные с ее функцией.
Ненависть к Америке постепенно стихала. Он стал истовым буддистом и забыл детские клятвы о мести; умение прощать было единственным путем, ведущим к просветлению. К двадцати годам Энсей Танкадо стал своего рода культовой фигурой, представителем программистского андеграунда. Компания Ай-би-эм предоставила ему визу и предложила работу в Техасе. Танкадо ухватился за это предложение. Через три года он ушел из Ай-би-эм, поселился в Нью-Йорке и начал писать программы.
Хейл побледнел. - Что это. - Стратмор только сделал вид, что звонил по телефону. Глаза Хейла расширились.