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- W2046159478 abstract "Start-up companies present many uncertainties for both entrepreneurs and seed capital investors. Although both seek financial rewards, they typically have different perceptions about what must be done to achieve them. The strong vision of the entrepreneur is often based on a compelling fascination with a new product. He knows that business issues are important but believes they can be dealt with routinely if the product is clearly superior. Venture capital investors encounter good ideas every day. The business issues are the critical factors for them and they must be planned carefully if the promise of the entrepreneur's vision is to be realized. These different concepts for creating wealth come together in the negotiation process for seed capital investments in start-up enterprises. The author studied six factors that enter into these negotiations. They are market, product, team, risk, time, and deal. He conducted a survey of venture capital organizations to assess the relative importance of these factors in determining the outcome of negotiations. The survey sent questionnaires to 137 members of the Western Association of Venture Capitalists. Each respondent was asked to complete it for three negotiations that succeeded and three that failed. Eighty-nine questionnaires were returned from 18 respondents reporting on 47 negotiations that succeeded and 42 that failed. The results suggest that business factors are more important than product characteristics for successful negotiations. Among the business factors, markets that offer unconstrained opportunities for rapid growth are significantly more important than the completeness of the team, a credible business plan, rapid return on investment, or favorable terms. The most important reason for failure of negotiations is a business plan in which too many things could go wrong, even where there are strong market opportunities. Both entrepreneurs and investors should find these results useful. Entrepreneurs need not approach venture capitalists if they are not part of a rapidly growing market or cannot create a new one with no constraints on the growth of their companies. Given good market opportunities, business plans must be readily believable to avoid failure of negotiations. Products need not promise major improvements over others in the market, but they must have a competitive edge. Although the team must be highly qualified, it does not necessarily need to be complete at the start-up stage. Investors may be interested to know that successful negotiations typically do not depend on unusually rapid return on investment or particularly favorable investment/equity ratios. They can expect negotiations to fail if the business plan is very risky, even where market opportunities are good." @default.
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- W2046159478 title "Factors affecting success and failure of seed capital/start-up negotiations" @default.
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- W2046159478 doi "https://doi.org/10.1016/0883-9026(89)90028-1" @default.
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