We are returning to Venture Capital 4 You Blog

Thank you for following us. Due to changes to our apporach, we are returning to http://venturecapital4u.blogspot.com

Looking forward seeing you there , for more information and updates on the topic venture capital.

Venture Capital and Its Characteristics

More businessmen are getting into venture capital. Whether as entrepreneurs or capitalists themselves, more people are getting into it because of the promise of fast, easy money in a relatively short time. While many may attest to the financial security that the scheme brought, there are also just as many unfortunate stories that have circulated as well. Here are some characteristics of venture capital that any businessman must know.

Venture capital firms are made up of individual investors or corporations. Sometimes the participants are institutional investors like insurance companies, foundations and pension funds. Aside from these firms, there is also what is called as angel investors. These are individuals or a smaller group of investors that operate the same way as venture capital firms. They all function the same way, and that is to fund small and starting businesses, ending in a buyout, merger or IPO.

Finding start up capital is not easy. First, you need to fit in the investment criteria that these firms provide. There are several of them listed in directories or the internet. The line of business that you have in mind should match that of the firm.

Otherwise, there is lesser chance for your proposal to be approved. Also, you need to have a business proposal that would persuade the firm. It must be concise, well-written and well-researched. With the hundreds of proposals that they get, it is crucial that yours should impress them.

Venture capital investments are different from venture capital loans. For the latter, the risk is borne by the investor and not by the investment firm. The entrepreneur must repay the amount plus interest, regardless of the company's success or failure. For venture capital investment, it is the firm that bears the risk. This explains why more people opt for venture capital investments than loans.

Since the firm bears the risk, it is therefore the one entitled to a major part of the profits. These investors seek maximum gain at the shortest period possible. They're eyeing on at least a 100%, even 700%, return of their investment. That is why they tend to have more control over the company than its entrepreneur. If you have problems with relinquishing control over the company, then this scheme is definitely not for you.

The good news, though, is that these capitalists are experts in the business field. Their policies and strategies have already been tried and tested. Should any of their plans fail, they are sure to have back-up or alternative plan. In other words, these people know more than the new entrepreneur and can help a great deal in the management of the company.

Knowing the characteristics of venture capital may prove to be useful to any businessman. With this simple guide, you will have a glimpse of what it's like and what to expect from it. This should be the first question that any aspiring entrepreneur should ask: is this right for my business? Venture capital is not fit for everyone.

If you do not fully understand what it is and how it works, then you might as well not consider it – yet.

Learn more about the topic by reading more articles and acquiring more information. If it has worked for others, then there is no reason why it shouldn't work for you too.

Business Angels Vs Venture Capitalists

Have you these amazing ideas which you’re sure you can put into practice and make a living out of your ideas.  If so you’re more than likely looking into financial help to put these ideas into practice.  You may think bank loans, credit cards and loans off family and friends are the only options but Business Angels and Venture Capitalists are also a good option to consider.

Business Angels what are they you may ask, they often work as individuals who themselves are entrepreneurs and have made their dream come true in whatever business sector they chose.  They have now have the experience and financial backing to help other entrepreneurs to start their own business just like themselves years ago.

Venture Capitalists are very similar to Business Angels they are often from an entrepreneur background have made a successful business and now would like to give back to other entrepreneurs and help them with finance for their new start-up business.


So you’re asking what is the difference between them both, they are:

Business Angels – Give you the financial help you need when you need it, and invest their own money in your business.  If a business angel works within an angel network the angels will pool together with their investment as well as sharing research they each do.  Angels understand the needs of a new business as they have been there themselves and therefore they not only offer financial help but they can offer good advice when no one else will.

Venture Capitalists – Give you the financial help you require when you need it but uses pooled money the venture capitalist and others have in a professionally managed fund.  Venture Capitalists like to take an active role in the business they are investing usually being a director or on the management board of the business.

So if you’re looking for some financial help for your new start-up business or even your struggling business you don’t just have the options of:

•    Family
•    Friends
•    Banks
•    Loans
•    Credit Cards

You have the option of using a Business Angel or a Venture Capitalist.  Which ever one you decide to use the only way you’re going to show your serious in wanting their help is to have a well planned and thorough business plan.

A business plan will not only be used to show your investor what you planned ideas are and your predicted returns in the next few years will be it will also be used for you to run your business well.  Your business plan will show others what your initial goals were and if you succeeded in these as well as any risks you planned for and if any of these actually occurred and if they did, did you cope ok with rectifying the risk.

Your business plan shouldn’t just be placed in a drawer and forgotten about it should be regularly updated.  Your business will continue to change and usually out of your control and you should reflect on these changes within your business plan.  You should have contingency plans to deal with any external influences that would affect your business and the way in which you run it.

You should now be a little wiser of the facts of the difference between Business Angels and Venture Capitalists and how they can help you.

Silard Matrai
SXH Capital 

Borrowing For A Business Venture

Starting a business is a lot like having a baby. In the initial years it will require constant attention. As the years go by, you will have to nurture and sustain it. You have to aim at making it self-reliant within the span of a few years. Yet, as I have already mentioned, the initial years are tough work. You cannot afford to shirk your duties as an entrepreneur in the first few years. You will have to work very hard, sometimes round the clock, to meet targets and objectives...

Deals will not come easily and you will have to cut down on costs. This will require you to spend much time and effort in finding great bargains for your business.
The initial years will also require you to invest a great deal. At times the money that you require may have to come out of your pocket. You will feel the pinch irrespective of whether your business is a sole trading concern or a partnership.

Sometimes, when cash is required urgently, the fastest way to meet that need is to get a loan from the owner himself. Thus, the business person will advance the required amount from his own savings. This will be treated as a business loan which the organization will have to repay when the money comes in. This is a popular choice that is resorted to by many smaller businesses when money is needed. However, the convenience of this method has a disadvantage. If the business continues to borrow from the owner, there could come a time when the owner's reserves are exhausted. This might spell doom for the business.

Alternatively, you could apply for a term loan for your business. The advantage of this is that it has a limit. This would require the business to stay within a particular budget. On the other hand, a major negative of this mode of borrowing is that it can be rather costly. And one point to remember is that the interest that you pay on the loans is subject to taxes.
Yet another way of providing for your business in the early years is by securing a business credit card. If you find a cheap credit card, you could end up saving on a lot of money. Moreover, with the hundreds of credit card rewards that are available today, you could actually save on your business expenses in the long run. So, if your nascent business needs cash, some 0% credit cards might solve the problem.

To your venture success,

Silard Matrai
SXH Capital

 

Pitfalls to Avoid in Applying for a Venture Capital

Most entrepreneurs know what they have to do when searching for venture capital. But there also common mistakes that you have to avoid when presenting your business. An applicant can be rejected for a number of things.

Most venture capitalists are only required to approve a certain number of business plans they come across everyday. Your business must have a competitive edge over others that will get the attention of the investors.

You have prepared all of your legal documents and practiced your pitch a thousand times only to get rejected. At some point, you won't even know why you got rejected. Don't wonder if applicants get rejected over something trivial. To be able to increase your chances of getting approved you must know what to do and the common pitfalls to avoid when applying for a venture capital.

Don't be too technical. Investors pay more attention to number and figures because they understand them better. Although this may give the impression that you know your business like the back of your hand, the investors may not understand you. Your presentation should be able to communicate well with your audience. You know "Facts Tell, Stories Sell" and emotions sell, ego, greed and fear of loss buys the most of the times.

Don't give false hopes. Overly optimistic projections may ruin your credibility. Investors rely on credible financial projections not expectations. Unless your assumptions on future earnings are back up by credible sources, don't mind bringing them up. It's better to present realistic figures that can be achieved by the business.

Do not provide incomplete financial information. You must present both past and projected financial data. Historical financial information informs your investors what the company has accomplished and communicates future projections. You will need balance sheets, income and cash flow statements.

Sales are not the solution to all problems. Investors are looking for businesses that have potential for long term returns. Earning in small profits that can be collected in a timely basis proves a better survival strategy. Earning large amounts of profits while loosing money at the same time will ruin your business.

Concealing problems of the business is not a good idea. Investors also understand that all business has problems. State the whole story and inform them how you will manage and solve it in the future. Owing up to past and existing problems is better than hiding them. As long as you can present a solution your investors will understand.

Low price leverage. The low price strategy can only be achieved by one leader in an industry. It's not a good sign to your investors if you are relying on a low price rather than the quality of your product or service. Wal-mart is one the few who can manage to capitalize on this strategy. (But how they can is a complex issue.)

Overconfidence in your product is also not a good idea. Your idea maybe unique but you should always remember that the possibility of a competition will always be there. Every business profits from a need and any smart entrepreneur knows that. Your ideas may different but looking at the whole picture you may also be focusing on a need that others are also addressing. 

State the facts in print. All entrepreneurs have a clear vision of what their business is but not all of them are good in putting them in print. It's important to be the author of your own business plan than get outside help that may not be bale to capture your thoughts.

Silard Matrai
SXH Capital

Venture Capital Cycle – How Does it Go?

Venture capital is something that most aspiring entrepreneurs are eyeing. This is because the deal is rather simple – you submit the proposal, firms accept the deal and provide funds to finance it. Compared to bank loans which you need to repay, venture capital is paid by the firms and investors.

But while it may seem easy, the process may be a little complicated as you go along. Here is a simple discussion on venture capital cycle and how it works.

The cycle is basically made up of three stages: raising of funds, investment of such funds, and exit.

Before you can close a venture capital deal, you must first find a venture capital firm. Research on the firms available, and see which industries they are most inclined to. Your proposal must fit their investment criteria, otherwise, everything would just be a waste of time. The usual fields are biotech and greentech. If these are the types of businesses that you wish to enter into, then you are in luck.

The next step is to develop a business proposal. This you will submit to the firm. It is therefore important that the proposal is short but complete and well-researched. At this stage you may seek help from professionals and consultants. Make sure that there are no errors in it. When it is your time to present, be sure to have studied your proposal and the industry where it belongs in order for you to be able to answer questions that capitalists and managers may ask.

Granting that you've submitted a good proposal and was given the 1:400 shot at landing a deal, you have now completed the first stage of the cycle. The next stage is in the investment of such funds.

During presentation, you will be required to present a management team. It is important that this team be composed of competent people who are knowledgeable of the field or industry that you propose to enter. Aside from your own management team, the firm shall appoint managers to help, even impose, policies and decisions in the company. Since these firms have high stakes in the company's success, it is only logical that they interfere with the decision-making process and in effect, have more control over the company than its owner.

During exit, the funds are liquidated and returned to the investors. This usually happens within 3-5 years, even sooner, if the return of investment is very high. An exit may take different forms, such as merger and acquisition, buyout and initial public offering or IPO. While others may have succeeded in earning more than 500% of their initial investment, there are likewise others who failed. Also, a big chunk of the funds goes to the expenses of the firm, such as management fees, consultation fees, and other fees.

Understanding venture capital cycle will make you better, more efficient entrepreneurs. That is why it is important to do some research, read articles, even enroll in a venture capital course. Furthermore, investigate on the trends of the industry that you want to enter into.

No entrepreneur became successful just by mere luck or chance. Any entrepreneur will tell you that you need to study and understand what you're doing in order for you to be successful.

S.Matrai

How to Raise Venture Capital Funding

For one reason or another, you've considered putting up your own business using venture capital. It could be that you don't have enough financial resources or you don't want to risk your own money. Perhaps you've heard of some successful entrepreneurs and wished to follow their footsteps.

As you search for more information on this, you'll soon find that the first important aspect in venture capital is raising it. Here are some tips on how to raise venture capital funding.

The first step is in understanding how these capitalists and investor firms think. Basically, their goal is the same as yours – to make money. The only difference is they've spent most of their time in research – studying which businesses have the potential of growing in a couple of years. That is why in the past few years, investments are geared towards technology and biotechnology fields, as they are the fields with highest potential.

Sometimes they operate within a certain field or geographical area, so you must know the investment firms in your locality. Thus, there's the need for you to make a research on the firms within your state as well as their investment criteria. Know what they want and give it to them. If your business proposal is not in line with these businesses or does not meet their investment criteria, then make sure that your proposal is impressive enough to catch their eye.

This brings us to the next step – preparation of your business proposal. Since these firms receive tons of proposals, it is important your proposal be brief but complete. The opportunity must be well defined and clearly explained. This is only possible if you did your homework well. Know the market that you wish to penetrate as well as your competitors and their strategies.

Make sure to ask help from experts and professionals on how to draft these proposals. While it may be an added cost, the chances of your proposal getting approved will also greatly increase if you seek help. This is very important specially if you have no business background.

You may know your business well and have made a thorough research, but you haven't translated it into a clear, reasonable proposal. Have someone check your draft before submitting it. Lastly, check your proposal for any errors in typo and grammar. The figures must also be accurate.

After you've submitted your proposal and have caught the firm's attention, it is time to put up a management team. Keep in mind that with venture capital, you lose some degree of control over the company. These investment firms would also field in some of its people to sit in the board or be a part of the management team. It is therefore important that your management team be strong enough to handle the pressures from the investment firm.

If you're thinking of expanding your existing business or putting up a new one, venture capital funding is a good alternative. But before deciding on it, know the options. Read business books and articles on the topic. Then study your business plan and see if venture capital is applicable.

If you think that this is the only way to go, then go for it. Just make sure that you take all precautionary measures and know all alternative strategies to your business plan.

S. Matrai