By Laurence K. Hayward
This is part nineteen of a twenty part series on this topic.
19. What is the planned "Use of Proceeds?"
VCs want to know that their money is being put to good use in order to directly accelerate the business opportunity, so that they will receive their ROI in a timely fashion. Generally new investors aren’t interested in paying for the exit of existing investors. They don’t want to see their money going ‘out’ of the business; they want to see it invested in areas that will increase the value of their investment.
You may have heard the saying, “calculate the amount you need and double it” with respect to estimating the amount of capital you should raise in a given round. A better approach is to build a projected cash flow statement and a timeline of milestones. Understand the amount of capital you’ll need to breakeven (depending on the stage of your business this may not be achieved with this particular round of financing) and the amount to finance your business for the next twelve to twenty four months. Understand that if you are successful at closing a round, you may need to begin the process of raising the next round of capital shortly thereafter.
Include a breakdown of how the money will be spent and what it will allow you to accomplish. While it is true that estimating capital needs isn’t an exact science (thus the “double it” phrase), estimate “uses of funds” as scientifically as possible and then develop contingency plans.
Laurence K. Hayward is the Founder and CEO of TheVentureLab. To learn more about him follow the link here
An online meeting place for entrepreneurs and investors to interact and engage in discussions on early stage investing and entrepreneurship. Learn more about our activities and our team by also visiting www.theventurelab.com
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