Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 3 down vote favorite

When a VC says they want to do a "$3M on $3M" deal what does that mean?

share|improve this question

3 Answers

up vote 7 down vote accepted

if you don't know what it means ... then it means: "take the money - you are getting a good deal" ; )

it also means .... the VC thinks your company is worth $3M right now "pre money" and is proposing to invest $3M so your company would be worth $6M ("post money") and the VC owns 50% **. this is the simplest explanation.

(footnote) ** it does not mean you will own the other 50% of the company! This is where it gets very complicated - but at least I hope I answered your question.

share|improve this answer
up vote 4 down vote

CJ is dead-on.

I'll expand on the "you still don't own 50%" bit:

  1. Often, as part of a funding round, investors will require that you setup an option pool for employees of the company (usually 15-25%).

  2. Usually some portion of your shares in the company will go on a vesting schedule. Which means that if you leave the company before the vesting period is up, you forfeit some percentage.

share|improve this answer
up vote 2 down vote

Even worse, you need to understand preference shares vs. common stock and how liquidation preference may affect your ownership. I'm a former entrepreneur turned VC. If you're interested in this topic I cover a lot of stuff here -- > http://www.bothsidesofthetable.com/pitching-a-vc/ also check out www.feld.com and www.venturehacks.com.

share|improve this answer

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.