Dealing with venture capitalists (VCs) can be a daunting task for first-time entrepreneurs. They often feel they have to accept investment offers despite misgivings about the amount of equity demanded.
But by negotiating well, they needn’t give the business away, according to Adele Hinze, Founder and
Executive Director at Angel Holdings.
She was speaking at Entrepreneurs Anonymous (or Last Tuesday), an informal group that meets once a month in Dublin for networking and business guidance. Passionate about her business and buoyed by the strong response so far, Hinze was eager to share expertise with the group.
- Try to negotiate: VCs may ask for a certain percentage equity in a business in return for their investment. Hinze suggested negotiating a sliding scale where the investor gets a smaller cut if certain targets are met.
- Try to get an option to buy the VC out: “We all have a bit of the control freak inside of us. That’s why we are entrepreneurs in the first place,” Hinze said.
- Try to get more than one investor: It is good for second opinions and additional experience or contacts brought to the table.
- Interview the investor: “What can they bring to the table? What are their networks like?” Hinze said. “Ask them exactly what they can bring to the table.” Entrepreneurs should also be careful about partnering with VCs if they feel the investor’s approach is likely to cause tensions later on.
Angel Holdings just went live this week, and an official launch will be held to coincide with Global Entrepreneurship Week on Nov. 14. It is an online platform that seeks to match entrepreneurs with investors around the world. Instead of taking a percentage cut when deals are made, Angel Holdings offers flat-fee packages ranging from zero to €1,399.
Value-add activities include mentoring, limited-audience webinars with experts, and business planning. Investors and mentors are vetted, and Hinze said they will also be checked to ensure there is no conflict of interest.
Asked what is the most common cause of difficulty in venture-backed startups, Hinze said it could be lack of funding, different expectations between entrepreneur and investor, or where the investor wants to take control of the company. “You’ve got to be very careful who you get in to bed with — who’s snoring and who’s dribbling on the pillows,” she said.
“Don’t just take investment because someone is throwing money at you. It has to be the right person,” Hinze said. “You both have to have the same vision.”
Photo of Adele Hinze taken from the Angel Holdings website.