Just as there are many reasons why a company may want to raise funding, there are many different structures that can be used to accomplish the end result. Generally speaking, the structure is a combination of debt and equity. Investors like to get back all the principal that it has loaned the company, with interest, and a piece of equity that is referred to as an "Equity Kicker".

The terms that a Venture Capitalist offers to companies it is interested in funding can be very complicated. Once they review a company's business plan, financial statements, and complete their due diligence (which can take up to six months) they will start to narrow down the terms into a mutually agreeable term sheet.  Companies should not attempt to negotiate a deal with a Venture Capitalist without the advice of competent legal counsel and a good CPA.

Final documentation will be complicated and the management team needs to know every implication of the terms of the final documentation, otherwise they could unknowingly be giving up control of the company a year or two down the line. For instance, the investor might require that if certain milestones are not met, the investor's equity ownership ratchet's up, meaning the investor could end up with 60% and control of your company instead of the original 40% they started out with when they funded you.