Startups need equity funding, which is not always easy to find. The question you need to ask is ‘am I looking in the right places?’ Co-Ventures may be the answer to your funding needs. If you would like to know more about Co-Venture funding, this article is a good place to start.
How Co-Ventures can be more valuable to your Startup
Properly initiated and constructed Co-Ventures can bring you active partners who are more committed and can play an active role in your success. As they play a more active role, they also become a valuable resource when your Startup needs additional help.
On the other side of the investment spectrum are Passive investors. Sometimes you want an investor to contribute financially but to keep their distance. Most Passive investors fit this profile.
Building a cash flow positive business
Ok, you’ve overcome your first hurdle. You’re operational. Now you move to the next stage where the business needs to stand on its own feet, in other words you need to start generating cash flow. This is where many Startups fail. They have a ‘build it, and they will come’ view of business. As a rule, creating a viable business based on cash flow is a bigger challenge than fund raising. It’s also at this stage that your ‘cash burn’ rate increases. This is where active partners with good industry or technical knowledge become of great value. Their experience and connections can be invaluable in creating a commercially viable business.
The pros and cons of different Co-Venture models
Co-Ventures can take many forms. It's important to have an open mind when considering which model best suits your long-term goals. Equity can come directly from investors or can be provided as ‘in-kind’ work from key suppliers and partners.
Are Shareholder loans ‘equity?’
Shareholder loans should also be thought of as ‘equity’, as equity risk is being taken. Shareholder loans are also often used to enable an easy return of excess funds.
If all shareholders provide loans in equal portion to their shareholding, then things remain in balance. The benefits of keeping things in balance using this type of debt feature are that it can make it easier to extract the funds at a later date.
What is DST corporate’s experience facilitating Co-Ventures?
No one description will cover all the different types of Co-Ventures DST corporate have initiated.
The range and types of Co-Ventures initiated by DST corporate are extensive. Although the structure of each Co-Venture may vary, the common denominator is creativity. DST corporate have a holistic view of funding and equity raising. The impact of this approach is that most of these ventures are better equipped to survive long term.
What corporate structure works best with Co-Ventures?
Another common element is the fact that most are Pty Ltd companies. This is primarily for risk management reasons. Pty Ltd companies share ownership is generally better understood by most parties and allows strong representation of the key equity holders on the Board. This board level engagement enables better communications between equity parties.
What is the best equity distribution model for Co-Ventures?
DST corporate employs a ‘progressive release’ of equity. Equity is often provided as tasks or as milestones are completed. The progressive release of equity can also be on a time-based model. No matter what the model, some equity is best left in reserve for a number of smaller contributors who may make a contribution at a later date.
Why DST corporate are an advocate for Co-Ventures
Our experience has been that Co-Venture models are effective at bringing together the right mix of skills.
One of the features of the DST group is our extensive network and the depth of our pool of Subject Matter Experts. Many of our Subject Matter Experts have participated in Co-Ventures and played an integral role in the success of countless Startups, delivering access to knowledge, skills, experience and networks that create opportunities never considered by the original innovator.
These networks even extend into the best Universities and overseas markets.
What can I expect from DST corporate?
DST corporate’s Managing Director, Barrie Dobson, and his team specialise in assessing the needs of innovators and introducing the right parties into a customised structure. DST corporate takes the perspective that no two Startups are the same. Each has specific needs and specific challenges. DST corporate brings a depth of understanding and perspective to the inevitable negotiations that are required to create an effective Co-Venture model.
In addition, a representative of DST corporate usually takes the role of Chairman ensuring that the parties remain ‘commercial’ in their dealings. This focus helps to manage the expectations of all stakeholders, reducing the chance of conflict in the future, which is often the root cause of failure for many Startups.