nicole42n7: Making Money With Options

CAconservative said:

TrollJuice:

Who got played? Don’t you mean the American people! I think your under the misconception that this government in entitled to spend your hard earned tax dollars. Here’s a little clue…THEIR NOT! They have duped you into thinking they are entitled to your money and your still buying it!

Wake the hell up!!

Obimbo didn’t make “Veiled threats”! He openly told you what the hell he is going to try to do if the Republicans don’t give him his way. This isn’t about you and your needs, this is about a spoiled child throwing a hissy-fit, and he doesn’t give a Rats-Ass if you get hurt as long as he gets his way!!

Taxes,in this country,have been around longer than you, your parents, your grandparents and their parents. And the government has been spending that money ever since they have been collecting it. So get off your soapbox. Nobody likes to pay taxes, but the majority of Americans do, because they are responsible citizens. Not many people like to work, but they do because they are responsible individuals. The point is there are many things in life that we DON”T like, but we do them because we are responsible adults. And you really need to wake up and realize that most, if not all, Americans realize that we must reduce spending. But Conservatives don’t want to hear that. Consevatives had a great opportunity to get some real spending reduction, but they refused to budge on the “Revenues” issue. Which exposes their real agenda. And that agenda has nothing to do with reducing government spending. It is all about defeating Obama in November 2012. So stop the charade, Conservatives don’t give a damn about reducing spending, creating jobs or the American people. What they care about is defeating Obama in 2012.

Do you even read what you post? “… misconception that this government in entitled to spend your hard earned tax dollars…” Your hard earned TAX DOLLARS? So you actually admit they are TAX DOLLARS. Well if they are TAX DOLLARS then obviously they belong to the government. And who better to spend government TAX DOLLARS, than the government. And of course your Classic Conservative BS. Accuse the President of being a child and throwing a “hissy-fit” and insisting on his own way. Are you kidding me? That is the epitome of hypocrisy. When the Republicans won’t budge one iota on the issue of revenue, and you say Obama is acting like a child? How many times have the Republicans walked out of negotiations because the subject of revenues came up. Do you realize how foolish you look when you accuse the President of being a child and wanting his own way. On spending cuts alone he bent over backwards trying to appease the Republicans, but he insisted that they give a little also, and they flatly said NO. Now who’s the child there?

Startups ask me “How much money should I ask for?” The simple answer is the absolute minimum amount you need to make your plan work. Some entrepreneurs try to start with a huge number, hoping they can negotiate and close on a smaller one, while others understate their requirements, in hopes of getting their foot in the door with an investor.

Neither of these strategies is a good one, as both are likely to damage your credibility with potential investors, even before they look hard at your plan. Here are the parameters you should use in sizing your request, and be able to explain in justifying your request to investors:

Consider implied ownership cost. If your company is early stage and has a valuation under $1M, don’t ask for a $5M investment. The investor would be buying your company five times over, and he doesn’t want it. If your valuation is around $1M, you can validly ask for $200K-$300K, and offer 20%-30% of your company in exchange.
Type of investor. Angel investment groups usually won’t consider a request over $1M, while venture capitalists won’t look at anything under $2M. Amounts of $100K or less, are usually relegated to “friends and family.” Approaching any one of these groups with a funding request outside their range is a waste of your time and theirs.
Company stage. If your company is still in the “idea” stage, you have no valuation, so size your investment request on the basis of “goodwill” that you have with your rich uncle, and your business track record. Angels might be interested during “early stage” if you have a prototype, but VCs won’t bite until you have a product, customers, and revenue.
Calculate what you need, and add a buffer. Do your financial model first with the volume, cost, and pricing parameters you want. See where your cashflow bottoms out. If it bottoms out at minus $400K, add a 25% buffer, and ask for $500K funding. The request size must tie into your financials to be credible.
Investment terms. The most common case is an equity investment, but there are many terms that can impact what request size is credible. I’m talking about things like anti-dilution clauses, preferred versus common stock, valuation tied to later round, warrants, and bridge loan options. More restrictive terms reduce the credible investment amount.
Single or staged delivery. In many cases, a single investment request may be scheduled for delivery in stages, or tranches (often misspelled as traunchs or traunches), based on milestone achievement. Obviously, this reduces investor risk and allows a larger commitment, since they can limit their loss if you fail to meet key objectives.
Use of funds. Investors expect to see a “use of funds” list, and they expect the uses to apply only to your core mission. In other words, don’t tell investors that you intend to buy a fancy office building or executive cars with your funding. Even executive salaries should be minimal at this stage.
Projected return on investment. Most entrepreneurs skip this step, but it helps your credibility to include it. Estimate a return on investment (ROI) by projecting company valuation at exit, to show the investor who has 20% what he will get back for that initial investment. He’s looking for a 10x return, since he assumes only one in ten survive.

Obviously, determining the proper size of your investment request is a non-trivial exercise, but it’s one of the most critical factors for investors in making a decision to invest or not to invest in your company. You need to get it defensibly right the first time, because changing your request under pressure definitely will kill your credibility.

The days are gone, if they ever existed, when you could present an idea and a vision, and have investors throw money at you. Now you have to do your homework. Get busy, and have fun.

Marty Zwilling

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nicole42n7

Wednesday, August 3, 2011

Making Money With Options

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