Requirements for obtaining Equity | Monday December 29th, 2003 | |
In general, most companies that obtain equity are in high-growth, technology sectors that promise a high rate of return. Because equity investments are not collateralized and are riskier than debt, equity investors are looking for a high return on investment to justify their risk. These investors will generally look to new and growing market sectors or to business models with large growth potential within existing market industries.
If your business is a likely candidate for venture capital, you must prepare certain information to sell your idea. This includes a very short oral presentation; an investor-oriented business plan and executive summary; and documentation for any due diligence analysis.
Oral Presentation.
In searching for venture capital, you will have to pitch your idea to potential investors, often in informal settings. To do this, you must present your business concept and reasons for a high return in a short, concise (no more than two minute) presentation. If you are then invited to make a formal presentation to a venture capitalists or group of angel investors, these presentations generally last between 5-10 minutes.
Business Plan. You must prepare an investor-focused business plan that remains current based on market or business model changes. This business plan must include the following:
Executive Summary
Description of the Company
Analysis of the Marketplace
Discussion of Products and Services
Marketing and Sales Activities
Discussion of Management and Ownership
Organization and Personnel
Funds Required and their Use
Financial Data
Exit Strategy
Due Diligence.
Any company looking for venture capital should anticipate and prepare for the due diligence analysis that will be undertaken by any investor. In general, investors will want to see support for the assumptions and projections that are made in your business plan and presentation and to assess any liabilities. They will review financial statements, tax liabilities and any other potential legal liabilities. They will also want to test any technology and review any licenses, patents or documentation required to operate your business. In general, if you are seeking venture capital, you should obtain assistance from an accountant or lawyer to ensure that these materials are in order.
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