VC and Seed funding

Random Hero

Random Hero

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Hey guys,

I'm looking at starting up a business that will be very innovative and disruptive.
I know that in order to get seed capital, you have to have a compelling case and be steadfast.

I just want to know at what margins do VCs look when they invest in a company?
On dragons den investors will want to take up to half of the ownership of a company.
I feel like I would only be willing to give away 15% of ownership.

But what are the general margins they look at taking?:)
 
Random Hero said:
Hey guys,

I'm looking at starting up a business that will be very innovative and disruptive.
I know that in order to get seed capital, you have to have a compelling case and be steadfast.

I just want to know at what margins do VCs look when they invest in a company?
On dragons den investors will want to take up to half of the ownership of a company.
I feel like I would only be willing to give away 15% of ownership.

But what are the general margins they look at taking?:)
Click to expand...

You shouldn't look at it like that. Seeding rounds and VC rounds are plural. You will need multiple of them, and each time give up more equity. And that is a good thing. It is better to own 20% of something big, than 85% of something small. And VC firms are not interested in companies that aren't set to scale. So you really need to change your mindset around that.

South African's have a silly mindset around that that needs to change (And luckily is changing). Vinny Lingham actually spoke about the problem quite recently. You will probably need ESOP as well to get the talent you need.

As to the margins, VC's generally target an IRR of 25-30%
 
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No I do not think giving up 85% of a company is a good thing. because it would be like you are not a part of it. What will VC bring to the table? I think the maximum I will give out is 20% and only if the VC actually is involved in some levels of development

creeper said:
Look at Angel investing. http://www.angelhub.co.za/
Click to expand...

yes I have been looking at them. Would love to have an audience with MJ! and I think my business will excite him due to its innovativeness.
 
Random Hero said:
No I do not think giving up 85% of a company is a good thing. because it would be like you are not a part of it. What will VC bring to the table? I think the maximum I will give out is 20% and only if the VC actually is involved in some levels of development



yes I have been looking at them. Would love to have an audience with MJ! and I think my business will excite him due to its innovativeness.
Click to expand...

Good luck then
 
Random Hero said:
Hey guys,

I'm looking at starting up a business that will be very innovative and disruptive.
I know that in order to get seed capital, you have to have a compelling case and be steadfast.

I just want to know at what margins do VCs look when they invest in a company?
On dragons den investors will want to take up to half of the ownership of a company.
I feel like I would only be willing to give away 15% of ownership.

But what are the general margins they look at taking?:)
Click to expand...

How much funding do you need?
 
Random Hero said:
No I do not think giving up 85% of a company is a good thing. because it would be like you are not a part of it. What will VC bring to the table? I think the maximum I will give out is 20% and only if the VC actually is involved in some levels of development



yes I have been looking at them. Would love to have an audience with MJ! and I think my business will excite him due to its innovativeness.
Click to expand...
Don't think you've quite grasped how this works even on a basic level. Maybe re-read JS's explanation?
 
Random Hero said:
Maybe a 500k - 1mil...



Well the business will speak for it self. ;)
Click to expand...

That's not how it works. No VC will just put money into an idea. Idea's on their own are worthless.
And until you embrace the fact that you will need multiple rounds, VC's wont invest, as the valuation will simply not be big enough to make the risk worthwhile for a Series A. VC's have no interest in being part owners of a company that is only potentially worth R5m-R10m in the next few years.

You are probably better suited to launch a small business rather than a startup, and get a business loan
 
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JStrike said:
That's not how it works. No VC will just put money into an idea. Idea's on their own are worthless.
And until you embrace the fact that you will need multiple rounds, VC's wont invest, as the valuation will simply not be big enough to make the risk worthwhile for a Series A. VS's have no interest in being part owners of a company that is only potentially worth R5m-R10m in the next few years.

You are probably better suited to launch a small business rather than a startup, and get a business loan
Click to expand...

Agree. At the end, the Angel investors / VCs are focused on exactly the same thing as most investors. ROI. Albeit that are willing to take higher risk than normal investors. You can't sell an idea to them, except if it is really well thought out. It is better to have something to show aka a demo or minimum viable product. Also, if you have invested your own time / money already, VCs tend to look at the product / service in a better light.

I am currently in the otherside of the boat. Developed something (quite niche) and had a group test it. It is great approach as 1) I had free testing of the product commercially and received feedback and 2) have two potential investors coming to me.

The point is: idea is just an idea. Something tangible has more potential
 
I disagree that ideas on their own are worthless.

I would go as far as saying that the right idea is the hard part. Once you have the right idea , yes you still need to put it into practise etc etc , but no matter how much cash you have or how talented of a business man you are , with no idea you are going no where.

And I have the other 500k you looking for :)
 
Purply said:
I have 500k laying around, what will my ROI be?
Click to expand...

Well some financial analysis have been done. and if we can reach an amount of the market we are targeting first, we can make 10mil profit. we have scalability..
 
creeper said:
Agree. At the end, the Angel investors / VCs are focused on exactly the same thing as most investors. ROI. Albeit that are willing to take higher risk than normal investors. You can't sell an idea to them, except if it is really well thought out. It is better to have something to show aka a demo or minimum viable product. Also, if you have invested your own time / money already, VCs tend to look at the product / service in a better light.

I am currently in the otherside of the boat. Developed something (quite niche) and had a group test it. It is great approach as 1) I had free testing of the product commercially and received feedback and 2) have two potential investors coming to me.

The point is: idea is just an idea. Something tangible has more potential
Click to expand...

Well I have passed the idea face and into concept development. The tech is being created and will have IP. other processes will also be patented. So i will have a viable business end and a product/service as well as some prospective forecasts before the investment stage begins.
 
Random Hero said:
Well I have passed the idea face and into concept development. The tech is being created and will have IP. other processes will also be patented. So i will have a viable business end and a product/service as well as some prospective forecasts before the investment stage begins.
Click to expand...

Well done. You are taking a key step and putting some effort in it. Remember to not give up
 
creeper said:
Well done. You are taking a key step and putting some effort in it. Remember to not give up
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Thank you, I remind myself each morning to not stop or slack. :)
I'm going to need a lot of help with the roll out phase. How to expose the product. that is when funding will be key! X_X
 
Random Hero said:
Thank you, I remind myself each morning to not stop or slack. :)
I'm going to need a lot of help with the roll out phase. How to expose the product. that is when funding will be key! X_X
Click to expand...

Get a good mentor. Someone that has walked the path.

Edit. If you are in Joburg, there is an
Entrepreneurs club at the Gordon institute of business science. PM me and I'll send you the details
 
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I am trying to find some documents or research papers on the early stage equity split of Facebook. I can only find the most recent graphs that show these indications. but I would love to know how the equity split looked in the beginning with their first big funder.
 
Random Hero said:
I am trying to find some documents or research papers on the early stage equity split of Facebook. I can only find the most recent graphs that show these indications. but I would love to know how the equity split looked in the beginning with their first big funder.
Click to expand...

Except the Zuckerberg screwed over Eduardo Saverin (I think) by diluting his share in Facebook. The movie / book might have dramatised it a bit too much, but there was a law suit. Something you need to be wary of.

Something that is stuck in my head is during my Honors degree. The speaker during a class was a person that started a company, but had to get in some partners. So, he gave 33% to the first partner, keeping 67%. They brought in another partner and his shares became 45%. And the 2 partners turned on him as they had majority share. So, lesson, be VERY careful on how you give away your company. Also watch out for dilution.
 
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