One of the worst things an entrepreneur can do is to underestimate the risks or refrain telling an investment partner about everything that conceivably could go wrong. The stage where a company finds itself in the development process greatly affects the risks, both for itself and for its investors. Venture capitalists who take such risks when, for example, a company is in its start-up phase are entitled to recoup a greater share of the profits. The same amount of venture capital invested later on will be able to buy less of the company. After all, a business with a solid track record, proven idea, and seasoned, experienced leadership and staff has a far better chance to survive.
Individual situations vary.
More and more, companies are tapping into employee investment funds as an inexpensive means to fuel growth. As an added advantage, the argument goes, employees with a greater stake in the company are much more likely to stick around. Plus, they tend to go the extra mile to make things work. The balance of the stock, or approximately 75 percent, can be split among the founders and venture capitalists. If the skills of the founders are adequate to provide the company with competent and savvy leadership, they may retain as much as 20 percent of the enterprise.