Venture Financing:

Step-by-step Guide

Venture Valuation and Keeping Your Share

A Guide for Entrepreneurs

By Venture Planning Associates. Used by permission.

Venture Financing Funnel

Venture Financing: Key Documents To Be Prepared by a Venturepreneur

When it comes to finding an investor for your venture why should 'FAIR SHARE' be an issue?

Problems arise when entrepreneurs, experts in their field, find themselves in unfamiliar territory, and easily intimidated by the financial 'expert' controlling the funding, and the financial future of the deal. Some deals fail to get off the ground because the investor wants an UNFAIR RETURN. Others never see the light of day because the entrepreneur is unwilling to part with an appropriate share in EXCHANGE for INVESTMENT CAPITAL.


A SUCCESSFUL NEGOTIATION dictates that both parties walk away from the table as winners. How do you protect your interests and ensure that the deal you strike is fair for all concerned? The best way is to do your homework. Know as much or more about the true VALUE of YOUR DEAL as your PROSPECTIVE INVESTOR. By preparing a solid business plan that addresses everything an investor wants to know, you become an expert in his field.

In the process, you will learn for yourself the fair asking price, as well as the best and worst case scenarios. At this stage, you are selling a FINANCIAL PACKAGE, not your product or service. It must be competitive in the marketplace in the areas of risk, return, liquidity and technical issues.

Here are the basics:

Develop Comprehensive Financial Data

  • Determine the funds required and their use, by back fitting the cash flow requirement of your business plan.

  • Decide on an EXIT STRATEGY for the investor and yourself.

Each requires different CASH MANAGEMENT STRATEGIES. Include a comprehensive pre and post investment VALUATION ANALYSIS for your business plan and exit strategy.

  • Develop a TERM SHEET or DEAL STRUCTURE based on the prospective investors’ required rates of return for the stage of your business.

Business Valuation Study


One of the most frequently used methods to evaluate risk and reward scenarios is the FIRST CHICAGO METHOD, which requires developing THREE FINANCIAL PLANS and assigning probabilities to the outcome of the plan.

1. Your plan is successful and goes public or gets acquired.

2. Your business is moderately successful (15% after taxes).

3. The business fails, and is liquidated.

Assign a realistic probability to each scenario, and calculate a COMPOSITE VALUE. Then calculate the AMOUNT of STOCK to be offered based for a required rate of return (e.g. 40%). Back-calculate how much of the business to sell.

Investment Plan

This is the document outlining in further detail the timetable of required equity and debt financing, and the payback, or liquidation, of the investor's position under various scenarios. This is where the 'DEAL' is structured to MAKE YOUR BUSINESS ATTRACTIVE to INVESTORS.

By being prepared, not only will you know what is fair, you will have the confidence to stand up to those who would gladly demand, and get, more than you should give them in order to be successful. An important aspect of all fund raising is to consider the effects of DILUTION and RATES of RETURN for MULTIPLE ROUNDS of FUNDING.




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