Before, during and after negotiations with investors, entrepreneurs are typically at a disadvantage. The playing field is not even close to being level. The investors, especially venture capitalists, have a major advantage - they know the finer points of private company investing. Unfortunately for the entrepreneurs, most investors leverage this knowledge to their detriment.
Once again, the Internet becomes the great equalizer - providing the means for entrepreneurs to quickly and easily get up to speed regarding those finer points that investors already know.
Today, Enable looks at www.growco.com, a site specifically designed to help entrepreneurs and managers of growing companies improve their odds of raising capital from outside sources. It does so by answering the questions most frequently asked by entrepreneurs and managers of growing companies as they search for funding and, later, negotiate for favorable financing terms.
The site is actually an Internet version of a 302 page book entitled: The Growth Company Guide to Investors, Deal Structures, and Legal Strategies. You get the entire book for free - but more importantly, you get it in a format that is extremely user friendly.
The site is very comprehensive. It describes the types of investors who invest in private companies, the methods companies use to attract these investors, and ways to evaluate funding proposals. It includes strategies for negotiating better deals with investors. It also describes methods for protecting company secrets and using stock and other noncash considerations to attract and keep key employees.
As you will see, the site enables you to learn key investment concepts quickly and easily - on the fly, throughout the investment process.
User Friendly Features
Go to the site and you will see that is designed to be a "real-time" source book for busy entrepreneurs and executives. Its A to Z, key-word format helps you get directly to the information you need. The site provides more than 200 key words, concepts, definitions and explanations that entrepreneurs will come across during the investment process. Each of the key-word entries in the site are listed alphabetically on the left hand side of the screen. To review any entry, all you have to do is simply click on its title. The entries are also arranged by subject in the Subject Matter Indexes listing - which also appears on the left hand side of your screen.
Some Examples Of The Site's Added Value
For example, if you want to know how venture capitalists price their investments, you can find out by clicking on the word "Pricing". What pops up is a discussion of how investors evaluate and price investments in growing companies. The entry also suggests strategies for negotiating with investors and cross-references the reader to a discussion of principal alternative pricing methods.
Another example: suppose an investor offers you funding but wants preferred stock and registration rights. You can simply click on these terms and then you will learn the reasons behind the investor's request and the consequences the request may have on you and your company.
An example of how the site provides definitions that are easy to understand can be found under the key word "Dilution". Dilution is a troublesome concept that can have several meanings depending on which side of the table you are sitting at. The site defines dilution both by percentage and by value and most importantly, it gives you specific examples and then provides cross references to related concepts like anti-dilution - so you can understand the concept in its proper context.
Get to know the site and its 200 entries. I highly recommend that you at least scroll down and review all of them. This way, when investors use terms like "ratchets", "tag-along", and "preemptive rights" - you will not be intimidated and you will be much better positioned to get the best possible terms from them.
Published by Israel's Business Arena on May 30, 2000.