Getting Investors: Equity

If you're willing to give up part of your company in exchange for the money you need to make it grow, you'll be looking for investors or giving up a piece of ownership -- equity -- of your company. The advantage of getting investors is that you get an infusion of cash without taking on the burden of a loan. The disadvantage is that you get partners who have a say in, perhaps control, of your company.

There are a number of different kinds of investors, depending on how much money you're looking for, what stage of development you're in, how much control you're willing to give up, and what potential investors are willing to pay for a piece of your dream.

Equity investors take many forms, but they will all want to see a Business Plan that outlines your company, your goals, the progress you've made so far, how you plan to grow your company, and financial projections.

They will also want to know:

What's the potential financial return for them. Investors want to know what their likely return on investment will be. Because investing in a new or small company is riskier than other investments, investors look to find much higher returns than the stock market, bank certificates of deposits, bonds, etc. Business attorney Clinton Richardson, author of the Growth Company Guide, estimates that people who invest in start-ups expect to make at least 40 percent each year on their investments; investors who buy into second- stage companies, 30 to 50 percent; and those who come on board at the third or late levels, 20 to 30 percent.

Who are you and why are you the right person to run this company? Most people invest as much in the people behind a company as in the company concept. Even people who know you will want to find out more about your background, skills, and experience in running similar businesses.

What do you want and what are you willing to give? Be as specific as possible: "I'm raising $50,000 to create a prototype to take to retail buyers," or, "I'm raising $4 million to increase our manufacturing capacity 50 percent in anticipation of greater demand for our second-generation product." It may not be advisable to tell investors immediately what percentage of the company you're willing to give up for the investment, but you should anticipate that the question will arise early in discussions.

Table of Contents

• Angels (Personal Investors)

• Venture Capital

• SBICs

• Private Placements

• IPOs -- Public Offerings

Words You Need to Know * Financing Resources and Help
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