If you are in the mood for an interesting television programme, watch the Dragons Den programme currently available in South Africa on the DSTV's BBC Knowledge Channel.
A team of 5 venture capitalists allow would-be entrepreneurs to pitch for funding.
The common thread is the "entrepreneur" offering real small equity stakes in return for large sums of money. Now the first thing to note is that only once did I see an offer which wanted 51% of the equity. The reason was also obvious. The entrepreneur could not run a business and would need a whole lot more than simply advice. Needless to say, they turned the offer, which offered the full capital they needed to take the product to market, down
However, the bulk of these entrepreneurs are offering less than 20% equity for large sums of money. What is also interesting is that this is first round funding in most cases. Therefore the risk is higher and therefore the equity wanted by the investors is higher.
But the entrepreneurs are often ill prepared. They know much about the product, a whole lot less about the markets and competitors, and quite often even less about the financial side.
Do yourself a favour and watch this programme! Quite often you can accurately predict whether or not they will get the funding. If you can be get it right, then you are beginning to understand what VC's are looking for.
More next time.
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