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 if you still believe in the potential or just the new money will get 3X more stock for their new investment, all effectively taken from the portfolios of the people that did not participate in the round.

Not the friendliest tactic, but sometimes warranted if there are no easy sources. And it will also save the CEO and team months of potential work, but not requiring newer investors - who might force the price down based on the lack of progress anyway. See my blog for many more hints and tips on raising capital.

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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. Because if the management team owns 33% (of voting shares), and the outside investors own 66% they would need a lot of unity to override the founder’s board and share votes.  In this example, the outside investors would have to have ~75% of those outside shares to be voting 50% of all shares.

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These things start to matter if things are not going well for some reason. Rarely is there an attempted coup, or do board votes make critical (split) decisions, when things are going well. And if things are not going well,...

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.

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Pitching and corralling investors with interest is not in your control.  I can take three to six months. Often the partners become unavailable (on their yachts and at vacation homes, presumably) for summer and winter holidays.

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Nothing you can do because usually a partner meeting and vote is required to finalize any deal. Due diligence can take sixty days. Generating a sense of urgency is always a challenge as they have a hundred deals they can do every...

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Here is a graph showing the deals reported to Pitch deck, which could easily be skewed very high by all the smaller deals that go unreported

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Networking is the key strategy. You need to get out there and meet other CEOs, investors and key referral sources at physical events. LinkedIn can be a way to find them, but cold approaches are difficult. I get invitations to invest every week from people I do not know, and I am certain most are not high-quality deals within seconds from their email, deck or type of approach.  Bad English, missing key data, no team background and a hundred other red flags mean an instant rejection. Too many to even send five minutes looking at them when the CEO cannot hit the key points to sell the deal in a few sentences. That is the only thing that will get me to read a deck, unless I want to sell them the help they need to raise funds because I like their idea and think the CEO/Founder has potential.

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Warm interdiction are best. This is best if it is a CEO that made an investor money, introducing you to their past investors. Lawyer, accountants and...

The more money that is poured into a deal, the lower the risk and more market share they are likely to garner. And hot deals where growth and financial projections are getting real can create a feeding frenzy among investors. It is also likely that these larger investment can scare off smaller competitors.  It is often assumed there are a limited number of winners in any given market.

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Furthermore, it could be three or ten, but limited. Therefore, more money means lower risk and higher upside. Sometimes these deal with blow up, proving to have false expectations. WeWork was a good example of this, and so was Theranos. Both we run by entrepreneurs with questionable ethics. And that’s why the most good investors will want to see strong integrity in the CEO and management team. No one wants to invest in a company with a dishonest management team.

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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.

Angel investors would like to see good returns like this too, but are unlikely to develop their own models to their own assumptions as the amount of work involve is large, and they have no associates to do that work. Angel syndicates on $1M+ deals might do this work though and use their results to negotiate equity prices.

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The reality is few deals ever perform anywhere near their projections as there are too many unknowns that early on to have any confidence. The numbers will be rerun every time there is a learning experience and could go up or down dramatically. Angels are protected...

This is a big question and the deviation is very large depending on many circumstances. However, I will give some baseline information to help you prepare for the negotiation of terms. Your mileage will certainly vary.

Angel investors, early on, will not get anything except a promise of equity later via a convertible note or SAFE note. Their ownership stake is too small to have any real control, and the legal structure of a note gives them no real voting authority at annual stockholder meetings. So, control is usually not a big issue unless an investor is large enough to request certain covenants or guarantees. Giving out any rights at this stage can cripple a company to get the next deal done, so it is advisable to have a clean and simple note without any special privileges except the conversion discount. This might be warranted with a $250K plus investment. In this case the investor may want a board seat, board observation seat (non-voting member) or a special discount on...

Well, this is art more than science, so you will need an expert in raising capital to review the materials you have prepared and tell you your materials are of sufficient quality.  These materials should include the following, even at the seed stage, even though the bar for quality and completeness will not be as high:

1. Pitch deck
2. Business plan with market research, competitive intelligence and the business model you have designed to be unique in the marketplace
3. Team resumes in detail with every job (no holes)
4. Financial projections
5. Product offering and any sales and marketing results that can drive the projections. This includes Customer acquisition costs *CAC) and lifetime value (LTV) of a customer.

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If you do not have quality versions of all these things, you are not ready to...

Typically, you need a 20 to 40-page plan that discussed each of the five key areas of the business, which are marketing, sales, product development, finance and operations (delivery).  You will need this read by an objective and experienced expert for feedback. It is highly likely that you are both too close and not experienced enough (as an investor) to know how good the quality of this plan can be ranked.

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See links to other blog postings that list more detail on what is needed to approach outside investors. Most people blow the opportunities by approaching the contacts before they are properly prepared.

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Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has...