Startup Financing and VC Term Sheets
Section outline
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New ventures do typically not receive all the necessary funding upfront. Most firms go through various rounds of financing during their early life and these rounds of financing are generally tied to specific milestones in their business plans. This section takes a closer look at such staged capital contribution (SCC) plans. We look at a specific example of SCC at work and discuss the costs and benefits of such plans for the entrepreneurs as well as the investors. While SCC provides investors with a rather powerful tool to manage the exposure to their portfolio companies, it constitutes a horse race between greed (achieve better deal terms if you finance later) and fear (constant threat of running out of money) for the entrepreneurs.