Rates of Return and Investment Periods

Each stage has its own set of funding criteria and its own group of individuals who work in that field. The earlier the financing stage, the greater the risk, the greater expected return, and the greater percentage private investors and venture capitalists will request. Sometimes the investor will require control of up to 80% of the company.

Entrepreneurs, however, are usually given the opportunity to earn back controlling interest if certain milestones and performance standards are met.

Also, the earlier the stage, the more difficulty will be encountered in raising the initial capital. It may take six months to a year to locate the proper partner for your business.

General guidelines for venture capital investment returns are:

Start ups, 10-12 times return in 5-7 years.

Existing early stage companies, 5-7 times investment in 4-5 years.

Why are expected returns so high?

Quite simply because of all the non-performing investments, or losses and the lack of liquidity and the availability of other opportunities. The compounded Venture Capital Return Rate over many years is approximately 17.8%.

Enemies of Startups

5 Risks

9 Maxims of Venturing