START-UP NEWS

Good news: After some tough years for company founders seeking seed capital, new data indicate that the valuations venture capitalists are giving new companies are increasing. According to the San FranciscoÑbased research firm VentureOne, start-up entrepreneurs had to give up about 20% less equity for each million dollars they raised in the first half of 1993 than they had to in all of either 1992 or 1991. VentureOne president David Gleba attributes the change to a rebound in the venture industry; a strong initial-public-offering market has given venture capitalists new money to invest.

Don't get too excited, though. To get seed money, founders still had to give up an average of 30% of the company for each million raised. If you can afford to, you should wait before bringing in professional investors. According to VentureOne's data, profitable companies gave up just 5.4% of the company for each million in capital they raised.

-- Martha E. Mangelsdorf

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How Much Does Venture Capital Really Cost?

Average Amount Raised
(in $ Millions)

First Half
If Company Is: 1991 1992 of 1993
Just Starting 1.4 1.6 1.4
Developing Product 4.4 4.1 4.9
Testing Products with Customers (beta test) 3.9 5.7 5.8
Shipping Product 4.3 4.2 4.2
Profitable 4.9 5.2 4.5
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% of Equity Given Up
per Million Raised

First Half
If Company Is: 1991 1992 of 1993
Just Starting 37.2 38.1 29.6
Developing Product 13.7 14.6 12.3
Testing Products with Customers (beta test) 12.1 7.7 6.4
Shipping Product 11.1 11.1 9.5
Profitable 6.6 4.9 5.4
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