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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.

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

Venture Capital – Knowing Your Funding Options

Entrepreneurs and business experts have defined venture capital as a financing style between a capitalist and entrepreneur with a common goal of a handsome return in a short period of time, maybe 3 to 5 years. But while there are several resources on the definition and characteristics of this topic, few have actually discussed the options that this kind of business set-up has.

Before taking the plunge, know what these options are and how they can be applied to your current business plan.

The funding option depends on the stage of the company's progress. Investment firms can invest from $50,000 up to $20 Million. If the company is still at its earliest stage, where a concept or invention is still to be developed or proved, the option is called seed financing. Here investment is spent on marketing and product development. Product ingenuity and market research are the areas being focused.

When the company has already developed its product and marketing strategy but needs money for the actual production and initial marketing, the funding option is called start-up financing. This is the common option for new entrepreneurs and inventors. Here funds are spent for the production and initial marketing. Amounts can range from $50,000 to $1 Million.

Sometimes a company already has its products and may have initially introduced them to the market, but receives little or no revenue at all. In this case, the entrepreneur may need financial assistance at this stage, called the first or early stage. The amount usually ranges from $500,000 up to $15 Million, depending on the extent of the changes that need to be made. It could be that the product needs to be revised or developed to make it more saleable, or it can be a mere repackaging or change in advertising strategy.

The next option is called the second or later stage. Here the company has its products and may have received revenues, and has the potential of making it big in the near future, but for some reason has no funds at hand. It could be that there are some loans that need to be paid, or other financial schemes that need to be complied with. That is why venture capital firms invest from $2-15 Million to help the company.

Some profitable companies want to expand, but does not want to put in more capital out of their own money. Their goal is not to keep the company for many years but for it to quickly grow in order to make an IPO within a few months, say 3-18 months. This option is called the third or mezzanine stage. Amounts range from $2 Million to $20 Million.

Similarly, this next option needs an investment before an IPO, but the time frame is within 3-12 months. This is called the bridge. Investment is also between $2 Million to $20 Million.

Remember that there is a specific option for each stage that your company has. The key is to know what options to use. Similarly, you must know where to find these venture capital firms. You must also develop a concise but comprehensive business proposal to present to them. Lastly, keep in mind that venture capital is not the end-all but just the beginning of more challenging things to come.

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.

Venture Capital: The Basics

Many of us have ideas, but the real challenge is making them a reality. There are a lot of opportunities in the business industry but the real challenge is making out. Earning money is as difficult as finding. No one really want to be a cubicle drone but without any capital most of the  people  become regular employees, even if they have a tender dream about being in their own business.

There are ways to start a business. If you have a great idea that has a big potential, there are ways to access funds for your business. Venture capital funds are one of the sources of seed capital for your start up company.

Venture capitalists invest on start up companies with big potential and high growth. These are usually high technology companies that may lead returns in the long run. The downside of this is the venture capitalists get a share of your company and have say on the company's decisions. A person who has always dreamt of becoming their own business may find this a tad uncomfortable.

The low down on Venture capital

There are some venture capitalists that provide financial services to start up companies. These are usually companies that are entirely new, with mostly an idea and a business plan in their hands. Venture capitalists are willing to make risky investments on businesses that banks loans and capital markets are afraid to make.

Companies that they invest in are usually high technology business such as computer and electronics. They are also interested in development and research.

Venture capitalists are general partners that offer limited partnership to a company. These general partners are usually made up of executives from a financial firm. They have the ability to pool in a large amount of capital. These funds are usually taken from pension, foundations, insurance companies, financial endowments and financial institutions.

This may seem a very good idea for a starting company but there is downside to this. In the business world nothing is free and general partners require 20% of the net profit of the company. They also need a 2% management fee every year.

It's also not easy to attract venture capitalists. They often have strict requirements. They will no invest on companies that don't have proof of their technology. They may agree to meet up with you but that does not mean you're already in good terms. Most of time 999 business plans get rejected out of 1000. They can reject you for a lot of things that may even seem trivial at the moment. The hurdles don't stop there.