Elements of a Great Deal
Does the plan include early investor
return of capital?
How is the premium paid for the risks
What other "kickers" or other incentives not
necessarily monetary in nature are being offered?
Are there warrants or other options to
increase equity share or liquidate early?
Have you considered the tax and legal
considerations including state securities laws?
What business organizational format are you
using and why? Is it compatible with the proposed exit strategy?
Are buy-sell agreements, key man insurance
convertible preferred stock, and management contract agreements
How will additional capital and further
dilution of stock be handled?
6 Critical Deal Structure Considerations
You contribute 20%.
Let's say you're looking for $1,000,000. If your company is a
startup (the most difficult to fund), in investor will expect you to
contribute 20% of that amount, in terms of energy, efforts and cash...
Financing: Key Documents
If you are having trouble
getting your deal funded or structured properly consider the following when
developing your term sheet:
The financing for each deal is
unique. We think the best approach is to structure a fair deal for all
concerned and then
make the presentation. The marketplace for
venture capital deals
will give you immediate
You will either get funded or rejected. Always research the reasons for
All of these issues are inter-twined and like
a kaleidescope. When you adjust one issue all the others change. We
recommend that you develop the best
valuation and financing plan possible.
Then calculate some return that allows the
company to prosper, yet attract investors and allow for further growth while
maintaining control. Sounds difficult? It is! While we may not be able to
keep everyone happy, our years of experience will be at your disposal.
Then test it in the financial marketplace,
adjust and try again. In the space of four months we re-wrote a plan 12
times until all parties were satisfied and the client received $5 million
first round financing from a two
Venture Capital Funds.
Art of the Deal
The Art of the Deal is to have your parameters
set before you meet with in investor or venture capital company, rather than
asking 'how much will you give me for x% of the company”. Think of it the
same as getting an airplane ticket: you pay a fixed fee for a trip, that is
based on current market conditions, price wars, and seat class and
When you have thoroughly developed your
business plan and understand the true value of money versus your idea,
you can often come to a fair valuation and
position. It is best to suggest an investment scenario based on your current
business plan and assumptions that returns a 40% compounded return over five
While you cannot guarantee a return, that size
of return provides for the risk, opportunity cost and potential loss of
investment that investors are used to accepting. You must have prepared
various scenarios of your plan for contingencies and arrived at this
percentage of stock for investment using some type of weighted average of
Armed with the right information, you will
have much more confidence in the outcome. You will not 'dive for the check
at any cost', and you will show your company to be sophisticated beyond 90%
of other capital seeking companies.