Investor Expectations

For investors to take the leap of faith on your deal...

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Angel investors and Venture Capitalists need to see clearly how they will make a lot of money.
Here are some sample Investor Discount Rates from expected payoffs:

Payoff Compounded Annual ROI
3 x investment in 3 years
5 x investment in 3 years
7 x investment in 3 years
4 x investment in 4 years
3 x investment in 5 years
5 x investment in 5 years
7 x investment in 5 years
10 x investment in 5 years

Management should also consider that VC payoff requirements, and their corresponding ROI expectations, lessen with the maturity of the company in which they invest.

Examples of the ranges of ROIs that VCs typically expect for maturing private companies include the following (see The Venture Magazine Complete Guide to Venture Capital, Clinton Richardson, 1987, pps 183-184):

Company Stage Compounded Annual ROI
Seed or Startup 40% and up
First and Second Stage 30% to 50%
Third Stage and Mezzanine 20% to 30%

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