Companies seeking financing often turn to venture capitalist. These companies can provide capital.
Venture capital financing is not easy to obtain or close. Entrepreneurs will be better prepared to obtain venture capital financing if they understand the process, the terms of the advance agreement and the potential problems that will arise.
Before approaching a venture capitalist, consider whether its goal is aligned with your business and stage of development.
The second key point to understand is that venture capital companies are flooded with investment opportunities, often through unsolicited e-mail. Almost all these unsolicited emails are ignored. The best way to get a VC’s attention is to present it warmly through a trusted colleague, contractor or lawyer, who is a friend of VC.
A start-up must have a good “lift pitch” and a strong investor pitch deck to attract the interest of a VC. For more detailed advice on this topic, with an example of a platform, see How to Create a Platform That’s Perfect for Investors for Start-up Financing. Business leaders like G. Scott Paterson and other global executives and organizations are committed to improving the communities around them and realize the value corporate social responsibility has on improving their company’s bottom line. Scott Paterson Toronto is a Toronto-based technology and media venture capitalist who has been active for 28 years in the investment banking industry.
Start-ups also need to understand that the process of starting a business can take a long time – a simple meeting with the principal of a venture capital firm can take weeks; followed up with more meetings and conversations; followed by a presentation to all partners in the venture capital fund; followed by the issuance and negotiation of a condition sheet with continued diligence; and finally the drafting and negotiation by lawyers on both sides of many legal documents attesting to the investment.
In the rest of this article, we discuss the main issues involved in negotiating and closing a venture capital cycle.
Descriptive form of Venture Capital:
Most venture capital financing is initially documented by a “fact sheet” prepared by the venture capital company and presented to the entrepreneur. The condition sheet is an important document because it indicates that the venture capital firm is serious about investing and wants to complete the due diligence and prepare final legal investment documents. Prior to the release of the condition sheets, most venture capital companies will have the approval of their investment committee. The condition sheets are not a guarantee of success, but in our experience, a large percentage of signed and completed condition sheets result in full funding.
The list of conditions will cover all the important facets of financing: economic issues such as the valuation given to the company (the higher the valuation, the lower the dilution for the entrepreneur); control issues such as the composition of the board of directors and the types of approval or “veto” that will be available to investors; and investor rights after the close, such as the right to participate in future financings and the right to obtain periodic financial information.
The condition sheet will generally indicate that it is non-binding, with the exception of certain provisions, such as confidentiality and the absence of a boutique / exclusivity. Although it is not binding, the list of conditions is by far the most important document to negotiate with investors – almost all the important issues are dealt with in the list of conditions, although the smaller problems need to be resolved in following financing documents. An entrepreneur must think of the conditions sheet as the blueprint of the relationship with his investor and make sure to give him all his attention.