Entrepreneurship Tips — Financing

No good investors would want to invest in a company where the CEO did not have their head around the capital needed. A financial projections and plan is required to even get a meeting with most investors. That said, there can always be some back and forth negotiations. A VC might want to put more money in to scale faster. A CEO wants minimum dilution and to get the valuation up by achieving key milestones like MVP, traction, team building and quantification of customer acquisition costs. All of these reduce risk and hence increase the share and valuation price. Click...

The vast majority of companies will need outside capital to grow at more than twenty percent or so compound annual growth rate (CAGR).  This can vary a lot by industry, sales cycle, margins and other cash-flow factors.  Some industries are more capital intensive, requiring upfront investment in plants, equipment, people, research and development or other things. However, generally if you plan to grow a company over $1M in sales, you will need a working capital financing strategy projecting these needs over three or more years. We define scaling as over fifty-percent growth.  So, unless your gross profit margins are exceptional,...

One of the good question and very complex too. Here are my top 12: Strong CEO and Team - This is 50% as a strong team can fix everything else. And a CEO that has built and exited a company before, ideally. Young, new entrepreneurs will need a stronger team, advisers and board. Large market opportunity. Usually, $1 billion plus in 5 years. Clear market entry strategy, going after a niche (small market) and expanding into other niches or broader market after 1–2 years to make product and other infrastructure robust. Creation of barriers to entry, or sustainable competitive advantage....

Debt if there are assets or cash-flow or a “Play or pay” round. A tactic to force people to ante up a pro rata share because the price is lower than the last one (down round) and so those that do not put in their pro rata share are diluted significantly. Think about it. If you bought in at $1.00 and the company made little progress, but still has lots of potential, then if the Board/CEO offers new stock at $0.30 you almost have to buy if you still believe in the potential or just the new money will get...

You generally only lose control when outside investors own over 50% of the voting shares. That said, many deals contain “Covenants”. Even a bank will request certain things never be done without their approval. For practical purposes, because the management team is likely to vote together unless there are serious problems, when the outside investors collectively own 50% of the remaining shares is what matters. Because if the management team owns 33% (of voting shares), and the outside investors own 66% they would need a lot of unity to override the founder’s board and share votes.  In this example, the...