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Venture capital investing in health IT is expected to increase, while investing in medical devices and biopharmaceuticals drops, according to a recent National Venture Capital Association survey. Read more about why VCs are favoring health IT companies.
VCs increasingly are leaving the industry to become entrepreneurs, yet despite their experience with funding startups, many of them are realizing just how challenging it can be to launch a successful business. The insights gained in entrepreneurship, in turn, provide them with a perspective on what it means to be on the andquot;other sideandquot; of the funding table.
Finding venture capital is a matter of securing the right fit between founder and funder, writes the author. Affinity with a investor helps, such as pursuing groups that finance the type of company that yours is, such as a minority- or female-led firm; also necessary is a plan outlining your company's financial prospects and a pitch for convincing investors that you can execute, the author notes.
This informative piece explains a well-known method that venture capitalists use to determine "post-money valuation," which is a company's valuation at the time of investment. Perhaps more important, it provides valuable insights into why the returns expected by investors are often perceived as "too high" by entrepreneurs.
During a round of investment in seed- (start-up) and early stage companies, angel investors typically invest from $25,000 to $100,000 each. The round usually totals between $250,000 and $1 million, and the company valuations run from $1 million to $3 million. Collectively, the angels purchase from 20 to 40 percent of a company’s equity and seek a return of 20-30x over five years.
Since the Internet bubble burst, the pre-money valuations of seed-stage companies by venture capitalists have averaged between $1 million and $3 million. Angel investors tend to participate at earlier investment stages than VCs, so pre-money valuations for angel deals nearly always fall into this admittedly wide range. What factors within this range impact the valuation of a specific company?
The accompanying Valuation Worksheet provides entrepreneurs and investors with an empirical basis for deciding if a start-up company should be valued near the top or bottom of the range. It’s not designed to be used for definitive valuation calculations.
The Valuation Worksheet lists major factors and key issues to consider in judging the value of a seed (start-up) company. Note the following features:
Entrepreneurs can use the worksheet to gain insights into what investors are looking for in a fundable seed-stage company and to identify factors that justify higher pre-money valuations. The worksheet is also a roadmap on how entrepreneurs can improve the fundability of their enterprises and increase the pre-money valuation.
A venture capitalist explains how key performance indicators (KPIs) are best compiled and used. They should be straightforward covering financial items and people, probably no more than 20, tied to specific managers, and coordinated by the CFO. Sales should be handled as a separate category.
In the first three years of running her printing solutions company, Wendy Fergerson borrowed roughly $60,000 per month on credit cards without paying any interest. Out of that experience, she recommends credit cards as a way to bootstrap a company as long as you pay attention to the details on each card for which you apply.
There are many ways to read financial statements. This information will add understanding to your own reading of your financial statements.
Securing venture capital can be a guessing game of trying to decide whether an investment will come through or not. Read about how you can work to get a positive answer and how you can tell if the answer may be a negative one.
This article provides insight into fast growth company potential investors--venture capitalists.
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