Sunday, November 11, 2007

Generic Range of Equity Desired By a VC for Round 1 or 2

Question: What's a completely generic range of equity a VC typically
wants for a round 1 or round 2 investment?

Most VC's will generally say they target 20-30% ownership in a company
to "make it worth their time". This means that if they invest $3m
early on, they expect the post-money to be around $10-15m and if, in
later rounds, they are investing $10m, they expect to have a $30-$50m

Often, however, VC's will use the "percentage" threshold as a means by
which to increase money into a round or to get the valuation down. I
have seen a given VC say they need 25% ownership for deal (to get
valuation down) and do a more competitively sought deal at 15% two
weeks later. In the end, two things drive all of this. First, there
are legitimate minimum investment amounts a firm needs to have per
deal. A $500 million fund will never get its capital deployed by doing
$2m and $3m deals. They need to put $7-10m to play early and $20m+
over the life of the investment. Second, the valuation (and hence %
ownership) will be driven by attractiveness and competitiveness of the
deal. In the end, it is really about valuation (assuming their
investment appetite remains in a set range).

via Ask the VC

No comments: