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.
There are a variety of types 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 shapes, but they all want to know
the same things:
Who are you? Position yourself as someone who knows what
you're doing because of what you've already done.
What do you want? 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."
What will this deal do for me? Investors want to know what
their likely return on investment will be. 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.