The remaining 15 per cent are looked at in more detail, but at least 10 per cent of these are dismissed due to irreconcilable flaws in the management team or the business plan. Another consideration in raising institutional venture capital is the amount of venture capital being sought. Entrepreneurs should emphasize their managerial capability, market attractiveness and cashout potential. With respect to investing in a business, institutional venture capitalists look for average returns of at least 40 per cent to 50 per cent for start-up funding. Second and later stage funding usually requires at least a 20 per cent to 40 per cent return compounded per annum.
Most firms require large portions of equity in exchange for start-up financing.
In calculating rates of return, many investment funds end up owning substantial amounts of company stock, which sometimes gives them equity control. The professional investor will look at the value of the company prior to investment and the investor's financial contribution when determining how much equity is necessary for the fund to receive an adequate return on investment. This issue is often the largest financing hurdle for venture funds and owners to work through. Incubators are mostly non-profit entities that provide value added advisory, informational and certain support infrastructure which includes productive office environment, finance and complementary resources. Incubators are mostly promoted by government or professional organisations seeking to develop small enterprises in a particular area.