When and Why Get VC money?

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April 25, 2005 by Dane Carlson | 0 Comments

Seeing Both Sides:

VCs look to make 5-10x their money in any investment in 4-6 years. If they can’t see a reasonable path to this, they won’t find the investment appealing. VCs also typically like to invest a minimum of $5-10M per company (some less, some more, but let’s focus on the bulk of the bell curve). If that $5-10M investment buys 20-30% of the company over time (typical), it means VCs typically invest in a post-money valuation at the end of the day that ranges from $15-50M. Seeking a 5-10x multiple on this investment means VCs look to invest in businesses that will be worth $75M-500M in 4-6 years.

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VCs bring capital – not just in the round they invest in, but in theory in their commitment to continue to invest in the company over many years, through good times and bad (albeit at varying valuation rates and thus varying levels of dilution!).