Start-ups and early stage companies are generally not attractive to institutional investors. Even in today's favorable climate, start-ups are basically just too risky for these sources of capital. The primary exception is where it is a proven entrepreneur starting another venture.

For start-ups, the capitalization plan should request the minimum amount of equity capital needed to bring the firm to $3-$5 million in annual sales. If you need $1,000,000 to accomplish that goal, you might consider raising 40% in equity capital through private placement, and apply for the remainder from a commercial bank.

Venture Capital

In many ways, the term Venture Capital is a misnomer. VC's are seldom adventurous; they generally search out syndicate deals to lessen their risk while maintaining their propensity for producing large returns. A syndicate example would be where a very successful company needs $100 million to assist in handling the costs and disruption associated with preparing an Initial Public Offering. It may require 100 VC firms at $1 million each to make the deal.

The Small Business Administration and the Venture Capital Institute of New Hampshire have estimated that, on an annual average, less than 1.5% of all start-up firms searching for capital receive their needed funding through any equity capital source, including institutional sources. The competition for this type of capital is far greater than most entrepreneurs realize.

If you are within the lucky 1.5%, the capital source will generally dictate the terms of the deal and will most often demand control. You may give up substantial equity and upside participation to seal the deal. The source of capital may also dictate your compensation and overhead allocations.

Securities Offerings

One way to dictate the terms of the deal and maintain control of your firm