What % of My Company Should Investors Get?

welcome to ass Jay I'm Jay Adelson happy to be here I am here to answer all the questions that no one answered for me when I was starting my business and I hopefully can help you not experience the pain I went through so let's get started I'm Jay Adelson and I'm the founder and chairman of revision3 I've built a number of companies I've been hired as a CEO and I've even been fired as one for example a clinics is a company I took public in 2000 and now has a market cap of over four billion dollars in 2008 I was incredibly honored to have been selected as one of Time Magazine's most influential people in the world my goal is to pass on some of this nose to you the budding entrepreneurs can hopefully leave you with some words of wisdom this episode of ask Jay is brought to you by Netflix today's question comes from Sandeep from Fremont California who asks how much should I give away to a VC hmm well that's a good question as little as possible I don't know it's it's it is hard particularly at the beginning whether it's an angel or VC to figure out what is an appropriate number but let me tell you just some general guidelines to use when starting a company at the beginning I have found that for angel investments in angel investments again are anywhere from you know $10,000 to a quarter million dollars that angels aren't expecting a lot they're expecting between five and fifteen percent depending on the investment and also depending on how far along you are with your idea obviously if you've got a prototype out the door already you know asking for 15% for a tiny amount of money is it's kind of dumb so you got a got to work that out make a choice figure out whether or not your company's at that point and and give away as little as possible now a venture capitalist like in a series a you know when you're taking millions of dollars you're typically going to try and target around 30% of your company that's the magic number I've seen in competitive situations where there's a lot of heat around your idea and competition between investors where where maybe you can get that as low as 20% but giving it away you really need to think about never going over that 30% mark now here's the exception to that rule and I'll tell you a personal experience I had when I was raising money for Equinix I know that in a six month period I was able to reduce the amount the venture capitalist would take from like 70% of the company because it was just a business plan to more like 40% of the company by hiring a team getting a team on board maybe even raising some angel money which I did at the time you know ten twenty thousand dollars getting some names behind the business and customer letters of intent and then I went back to the same VC and he's like well you know I can't I can no longer claim that this is not a viable business or there's more risk you D risk the business so at this point it's worth a lot more it actually brought it way way way down that was helpful another tip and trick I'll give you in a second but first I want to thank our sponsor Netflix streams TV shows and movies directly to your home saving you time money and hassle as the Netflix unlimited member you can instantly watch TV episodes of movies streaming directly to your PC Mac or right to your TV with your Xbox 360 ps3 or Nintendo Wii watch as many movies as you want anytime you want cancel anytime get your free trial membership go to WWF flexkom / HJ and sign up now be sure to use this URL so they know we sent you today's homework assignment in order to make sure that you give away as little of your company as possible is talk to other entrepreneurs to raise money at the same stage you have and figure out how much they've given want one really easy way to do this is actually talk to the investor and say hey you know I'm I'm interested in taking your money here but I need some reference you noted because after all this is like a marriage we're going to be working together for a long time can you give me the names of some other entrepreneurs you've invested in so the investor typically gives you these names and one of the first questions I ever ask these guys is okay when you raise this round with them how much did you give away it's a great way to make sure you don't accidentally screw yourself in this process the other thing that I recommend that you do and write this down on a piece of paper because going through that process is very helpful define the things that bring your company value at your current stage of the business if you're before a prototype the business plan itself doesn't have a lot of value but who are the team members that de-risk your business have you hired them already do you have letters of intent of people who will join your company once you raise the money for example on a piece of paper what are the assets you bring us or code that has already been written is there a domain name domain names have value you know the do you already have that figure out list them down so that when you're sitting across the table from a venture capitalist who's trying to take more of your company for the same amount of money you say hey here are the things that I already bring to the table so this is the value already have and so therefore you know I should be able to get the same amount of money for for less giving away all right we're all done please keep your questions coming to ash J at revision3.com I love these questions I love the weird attachments just again please nothing that's going to scare my mother and we'll just keep it at that remember find that screw that's loose and loosen a little bit more and I'll see you later

Channel: Jay

Views: 79,889

Keywords: rev3love, jay adelson, ask jay, start up, business advice, business school, business plan, website, web start up, entrepreneur, ceo, launch, funding, quit job, unding, raising money, venture capitalists, angel funding, investors, a round, b round, business ideas, start up ideas, startup, prototype, tips, money, market, super angels, investment money, vc, roi, executive summary, problem statement, market research, corporate attorney, retainer

Id: ewTl4aRU--s

Length: 6min 13sec (373 seconds)

Published: Tue Aug 30 2011