Frequently Asked QuestionsThis section will answer many of the common questions we receive from clients and other visitors. We suggest you join our mailing list for detailed topics published by current CEO's, CFO's and top Venture Capital Consultants. For detailed and confidential answers click here.
Answer: There are numerous possible reasons including the following:
You should position your deal as a moderate risk with moderate to high returns. This means looking at all the possible downside risks and having a program to mitigate them and keep moving forward. Each deal is unique, but if you can answer all or most of the negative "What If" questions you will have a much higher chance of getting the financing that you need. Top
Answer: Venture Capital companies (VC's) do not take fees for raising capital. They have funds in place (investments for retirement systems, insurance companies, etc.) that they invest in businesses. VC's provide expertise, due diligence and management assistance as well as funding.
Often they provide contacts to other VC's and Bank Lending sources to supplement their investment. Fees are most often charged by consultants and private placements.
Here the sliding scale, Lehman Formula is a good guide to follow: 6% for under $1 million, 5% on first million, 4% on second million, 3% on third million, 2% on fourth million and 1% on fifth million and beyond.
It works very much like points on a loan. If you are fortunate enough to attract a VC to your deal, you will need to know all about pre and post investment valuations.
Answer: The standard finder's fee is based on the Lehman Formula, of 6% under $1 million, 5% on 1st million, 4% on second, 3% on third, 2% on fourth and 1% thereafter.
Private Placement Fees done my NASD dealers will usually cost 10% of the offering, plus expenses. IPO's generally have an 8% fee paid in stock of the initial IPO to the underwriters as an incentive fee for floating the issue.
In general, debt and other financing instruments are billed at one half the above rates and act like points. We have heard of some companies charging up to 10% or even 15% fee. These should be avoided because the investor will not accept a fee that high.
Merger and Acquisition fees or small business sales fees can range from 3% to 10% depending on whether the company is acting as a finder or broker. Broker fees are higher because they are involved in the negotiations and have higher risk. Top
Question: I believe the best strategy for my startup software company is an outright sale to another company with a good strategic fit. (This is after investigating VC funding). I am setting up meetings with high level people in the companies where I think there's a potential fit. I have a business plan. I have a product. I have some revenues and some significant discussions with potential customers going on. What else should I do?
Answer: Here's what you need to do now:
Answer: Most entrepreneurs who lack experience should assemble a founder's team to work out the details of the product or service, develop the business and marketing plan using private placement money first.
Most venture capital companies will not look at seed capital or cold startup companies due to the risk and time and money required to see if the product or service is viable in the current marketplace. Venture Capital companies today work more toward the mezzanine financing levels with the idea of taking a company public within two years. You need a list of Angel Investors
We suggest that you get our 7 Venture Capital Report package that explains the entire process. These reports were developed specifically to bring up questions and provide answers to this question. Top
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