Invest Nebraska plays an active role in preparing companies for a capital raise, assisting them to attract outside capital, and ensuring the goals of the management team aligns the goals of all parties involved.
Frequently Asked Questions
What types of companies should raise outside capital?
Founders should recognize that equity is the most expensive form of financing. In addition to giving up a portion of control of the company, the investors now expect to be paid back with a significant return on their investment down the road. The company should should have a unique solution to the market problem that will give it a significant advantage against competitors and alternative solutions. A large or rapidly growing market opportunity should be able to provide investors with a 10x+ return on investment within a 4-6 year period.
What types of financial vehicles do start-ups use to raise funding?
Preferred stock is the most common form of early stage financing. Preferred stock is a class of stock that is sold to investors of venture scale companies. Preferred stock conventionally provides the holders with special rights, such as a liquidation preference that returns investor money prior to distributing money to common stockholders, anti-dilution protection, dividend preference, board placement, and certain contractual rights like the right to participate in future investments.
Another option that is sometimes used when raising capital is a convertible note. Convertible notes are loans that (ideally) convert into the preferred stock that is sold in a subsequent equity round of investment. The note might also cover contingencies, such as what happens if the company does not get to the investment by the maturity date of the loan, or if the company is sold prior to conversion.
How do I put a value on my company?
There are several different factors that come into play when placing a value on an early stage company. Later stage companies have the luxury of being able to demonstrate more quantifiable data to utilize in valuation modeling. When a company is still in its early days of operating one method to place a value on a startup is the Berkus Method, which places a value on existing qualities of the business. Another method is using an earnings or revenue multiple based industry standards. The most important thing to consider when trying to value a company is the current market determines the current valuation. Often a combination of methodologies and strategies are utilized.
Is capital from Invest Nebraska an investment or a grant?
Capital received from Invest Nebraska is an investment into the company upon which Invest Nebraska expects to receive a return. We strongly recommend each company to review the grants availible to high growth companies under the Nebraska Business Innovation Act. Often the companies that we invest in are past awardees of these grants.
What should I expect from investors regarding legal documents?
Invest Nebraska, along with nearly all other institutional investors across the country utilize the National Venture Capital Association template documents. Any documents straying from these general guidelines will not gain interest.
Prior to meeting with investors what metrics of my business should I be tracking?
A best practice (not only when preparing for a capital raise but at all times in a business life cycle) is to know the current cash on hand for a business, monthly burn rate, cost to acquire customers, and average lifetime value of a customers. Additional relevant metrics may include gross operating margin, monthly recurring revenue, and churn rate.