Investment amounts vary but most Series A investments are for at least $1 million. This whole investment process in a company is called venture capital financing.Īs I have mentioned before, the typical sequence for financing a company is: bootstrapping by company founders, then friends & family financing, then angel financing (in the form of convertible notes or series seed rounds), then Series A round (venture capital financing), then Series B round (VC financing), then Series C round (VC financing) and so on until an initial public offering (IPO). This return expectation is 3 to 5+ times over a 10 year period. Venture capitalists are investors that make these types of investments through a pooling of money (via a venture capital firm/venture capital fund.) Venture capital is money that is invested in the early stage of a company's life where ownership shares of the company is purchased by investors and where that company is expected to grow quickly with an expectation of a high return. I'm going to go through a few basic points and then summarize those points in this section. THE TERM SHEET > Management/Founder TermsĪrticle I. Preferred stock can convert into common stockĭ. There are different types of stock in a company.į. Venture capital funds look for an exit event in order to get their return on investmentĮ. So here is a comprehensive overview of what a venture capital financing deal is about from a system level, big picture point of view.Ĭ. However, the fact of the matter is that most industries operate in very similar ways. These all come with their own quirks. For example, here is an article about the oil and gas industry and venture capital and includes observations from Dallas and Houston, Texas: Texas Startups and Venture CapitalĪ lot of startups in Texas are focused on life sciences, clean energy tech, oil & gas, etc. I also want you to keep in mind that different industries have slightly different ways of doing things and have their own subtleties. It is all about understanding what's going on from a big picture point of view. I can tell you that my clients who have achieved without a doubt the most success think this way. You would be surprised at how few people think this way. Don't focus on bits of random knowledge without context. All you need is a good working knowledge of the basics. Your job is to focus on and develop your business-be it investments or entrepreneurship and make key strategic decisions and maneuvers. Go for it. But it's not your bread and butter. That's fine if you are genuinely interested in it. This is a dangerous type of subtle goofing off because you can convince yourself that it is noble to learn as much as possible. but you don’t have an overarching system level understanding of a deal that you're involved in, then your priorities are off and you're just messing around. If you're trying to learn about something like Code Section 163(l) disallowing any deduction for interest paid or accrued including original issue discount amortization on a debt instrument under certain tests blah blah blah. VENTURE CAPITAL 101-WHAT IS VC FINANCING?
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