By: Business of Fashion

Business of Fashion — Sat, 01 Sep 2007 14:02:35 +0000

Dear Gerald, Thank you very much for your insights – I agree with all you say about the benefits of early stage financing. I believe that those investors who are able to spot talent early could do very well indeed, for many of the reasons you outline That said, there is more inherent risk (unproven concept, no proof of ability to scale up, etc) involved with earlier-stage investing too (and this is why the return for taking this risk is higher).

By: Gerald Joseph

Gerald Joseph — Sat, 01 Sep 2007 04:06:29 +0000

As I’m sure you (Mr. Amed) know, but for the sake of fellow readers I’ll make the following statement: In venture investing in general the early stage deals are “sweeter” than later stage deals due in part to the following: 1. a firm’s initial financiers usually receive more favorable terms than subsequent investors who are late to the party 2. early stage investors anticipate additional funding at later stages – they usually retain an option, specified or implied, to lead future funding rounds, so if the startup really gains traction, then they can increase their percentage of ownership and really accelerate the value of their stake 3. a company’s structural, operational, and/or financial reporting may need to be modified to allow financing and enable expansion – this is far easier to perform at the early stage – corpoarate 4. early stage deals are cheaper and less complicated, early stage companies usually need less money and receive money in increments while later stage financings involve syndicates of financiers, more legal work, much more political sensitivity, and much more immediate capital-late stage companies usually in the midst of restructuring, refinancing, or immediate expansion need all of their capital and credit lines intact immediately upon signing a funding deal

Comments on: Breaking news: TSM Capital invests in Matthew Williamson

By: Business of Fashion

By: Gerald Joseph