They say venture capitalist would like a 40% IRR which is an approximation of their ROI, but this is all fantasy based on assumptions that drive the financial projections. Pessimistic projections can be used to negotiate lower pre-money valuation prices. So the CEO/Founders are selling the potential while the investors are selling the downside risks.
Read more: What Kind of Return Do Investors Expect When They Invest In A Startup for The Long Term?
Debt if there are assets or cash-flow or a “Play or pay” round. A tactic to force people to ante up a pro rata share because the price is lower than the last one (down round) and so those that do not put in their pro rata share are diluted significantly.
Think about it. If you bought in at $1.00 and the company made little progress, but still has lots of potential, then if the Board/CEO offers new stock at $0.30 you almost have to buy
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You generally only lose control when outside investors own over 50% of the voting shares. That said, many deals contain “Covenants”. Even a bank will request certain things never be done without their approval. For practical purposes, because the management team is likely to vote together unless there are serious problems, when the outside investors collectively own 50% of the remaining shares is what matters.
Read more: What Control an Entrepreneur Lose Once Start Taking Money from Outside Investors?
Learning and preparation should start at least a year in advance. Once you are prepared, allow six months. It could be shorter or longer, that will depend on your deal and the market at the time in that industry space. Hot deal areas can get done quickly, most will be several months at least.
Read more: How Long It Takes to Raise Venture Capital Typically?