Venture Financing:

Step-by-step Guide

How To Structure Your Venture Capital Deal



By Venture Planning Associates. Used by permission


8 Key Elements of a Great Deal

  1. Does the plan include early investor return of capital?

  2. How is the premium paid for the risks involved calculated?

  3. What other "kickers" or other incentives not necessarily monetary in nature are being offered?

  4. Are there warrants or other options to increase equity share or liquidate early?

  5. Have you considered the tax and legal considerations including state securities laws?

  6. What business organizational format are you using and why? Is it compatible with the proposed exit strategy?

  7. Are buy-sell agreements, key man insurance issues addressed, convertible preferred stock, and management contract agreements included?

  8. How will additional capital and further dilution of stock be handled?


6 Critical Deal Structure Considerations

  1. 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... More

Venture Financing Funnel    

Venture Financing: Key Documents

A Term Sheet

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 feedback. You will either get funded or rejected. Always research the reasons for either event.

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 business plan, 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.

The 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 selection.

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 negotiating 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 years.

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 value.

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.