Venture Capital Magazine

m.jeya


 

China being a developing and transitioning country, its venture capital market has some special characteristics.

1. China’s venture capital practices lag behind the international norm

The high-tech enterprises in China, relying on various sources of capital, have undergone a difficult process of development. Although China has quite a few high-caliber entrepreneurs in the high-tech industry, a large number of these companies (16,000 in Beijing while 72,000 nationwide) are run by inexperienced individuals.

a) Serious information asymmetry

First, there exists an information asymmetry between the managers of high-tech companies and the outside investors.

Second, there exists an information asymmetry between high-tech companies and venture capital firms. By international practice, both parties should be honest with each other and exchange information openly. After all, the venture capital investors add value by using their management and technological expertise to improve the company’s performance.

b) Serious exclusionism

High-tech companies in China, particularly those run by the locals, have a tendency to refuse to cooperate with outside investors.

c) High cost of investment

Chinese high-tech companies, particularly those run by the locals, are mostly under the control of couples or families. These ownership structures make it difficult and costly to follow the customary practice for venture capital investments, under which venture capitalists receive a substantial portion of ownership and control in the companies

2. Company managers, rather than venture capital investors, retain majority control

It is a common practice for the managers of some high-tech companies in China to demand for majority holding in cooperation with venture capital firms. There may be many explanations for such behavior, yet the primary reason lies in the influence of traditional Chinese thinking. This thinking is based on the belief that one will lose control over the company without majority holding or a leadership role in the company.

3. China lacks an infrastructure of service professionals to support venture capital firms

The growth of venture capital involves not only high-tech companies and venture capital firms, but also intermediary agencies such as law firms, accounting firms and assessment centers. Unfortunately, China still lacks agencies that offer proper services to the venture capital community.

At present, venture capital firms in China have to shoulder the multiple tasks of seeking for investment projects, assessing the projects, avoiding legal risks, planning the finances of invested companies and helping the portfolio company to list on the stock market.

4. The legal framework for venture capital investments is inadequate

Although China has set the national strategy of “revitalizing the country through science and education,” it has yet to set up a legal framework in support of venture capital investments. The Chinese venture capital community has been growing in the absence of proper protection by law.

5. The Chinese capital markets provides inadequate exit channels for venture capital investments

The returns of a venture capital firm do not depend on yearly dividends but on the acquisition or the initial public offering of its invested companies. Such liquidity events require mature capital markets, which China lacks at present.

venture capital financing has given rise to a dynamic system of modern financial products and services by introducing a series of innovations. Please visit online http://www.dynastyresources.net in NewYork city.

expertinabox

Guy Kawasaki, Silicon Valley celebrity and co-founder of Garage Technology Ventures, explains how to present to VCs to increase your chances of acquiring early stage capital. Part 1 of a 3-part presentation at StartWorks, June 2008.
Film by Expert In A Box. (c)2008 John Montgomery

merchantcashadvance

Find credit card merchant account, business cash advance, global venture capital at merchantcashadvance.com

ivaciu

Sergio GIACOLETTO, Executive Vice President, Oracle EMEA
Bucharest, July 9, 2008

“Oracle Innovation programme intends to bring together universities, venture capitalists, the Junior Achievement, the Young Enterprise Association and to put in place a formal process to help students to formulate ideas in a way that they can become business plans. We can help to train them and then we can help them to find the money,” said Sergio GIACOLETTO. He added that Oracle is now the largest employer of ICT skill in Romania, employing 1300 people in areas like technical support, consulting, product support and product development in the Oracle Center in Bucharest, opened in 2004. The Innovation program is the next phase of investments by Oracle in Romania.

“The initial wave of foreign investment in CEE countries has created, of course, jobs, but it has not necessarily helped to create local entrepreneurs and to create local companies which are needed on the long term for the success of the country. In the long term, low cost is not a sustainable competitive advantage. It is important to create more value added and to have a right balance of foreign direct investment and locally created investment.”

Oracle Corp. had USD22bn revenue with a 28% yoy growth in the financial year ended May 2008. The company is reinvesting about 12% of its revenues in R&D, USD2.6bn, in areas like technology infrastructure, databases and security. Besides internal innovation through its own R&D, Oracle created external channels of innovation through partnerships with companies in 149 countries. The “Innovation” initiative launched in Romania on July 9 is part of this dual innovation strategy of Oracle.

Dwight Kong


I have a great idea that when launched will be in high demand. If I start out with my current budget, my inventory will not match the demand. I would like to talk to a venture capital company or angel investment company to see if they would agree; preferably something familiar with pop culture and urban clothing.

Low Jeremy


Venture capitalism is a system wherein a venture capitalist invests money in small and fledgling companies to finance its start up or restructuring with the hopes of greater yield in the years to come. Instead of providing a loan, venture capitalists exchange their investments for a stake in the company often in the form of shares, which they will later unload.

Often, venture capitalists target companies with innovative products and services, which they feel have the potential to become successful brands in the years to come. Other times, people with ideas for products and services seek venture capitalists with the hope of being provided with start-up funds. These are the people who are just starting in the industry and therefore have no access to other forms of traditional financing like those provided by banks and financial institutions.

Often, they will provide the company with about three to seven years’ support. Venture capitalism may seem really fruitful when it comes to generating profits but not all investments that venture capitalists go into pay off.

In fact, most of the companies that they invest on will probably fail to return their investments. Remember that investing in new or troubled business is pretty risky. According to statistics, about 20 to 90 percent fail. They, however, recoup their losses with the companies that do go well. The return of their investments can reach from 300 to about a thousand times over.

Oftentimes, venture capitalists do not only provide money for the company but also managerial and strategic advice. They will often help the company stand on their own feet when they are just starting. Venture capitalists can also help in terms of providing contacts and in opening doors of opportunities.

If you are looking for a venture capitalist, make sure that you have researched the person or the company thoroughly. This is because there are venture capitalists that are more into providing seed money for companies that are starting up. Others concentrate on investing funds for restructuring and expansion.

Those with high growth potentials are good investments for these venture capitalists especially those in fields that are rapidly expanding like Information Technology, Bio-Technology and the Life Sciences. There are some that specialize in buyouts, turnarounds and recapitalizations.

It is important that you choose the right venture capitalist on your project. Do your homework and find out whatever you can about the venture capitalist that you are targeting. Otherwise, you will only be wasting your time and will just be turned down by these people.

A company is formed after someone is able to invent something. Take for example Henry Ford who was able to invent the first vehicle using an engine instead of it being drawn by a horse. This classic example is just one of many. The only difference is during that time; Henry had the funds available so there was no need to borrow from the bank.

But these days, those who want to start something have to borrow money. A student who wants to continue further studies on a project has to be a given a grant from the school. In the world of business, the entrepreneur can go to a bank or get someone to work with as an investor and as a partner.

This partnership is better known as venture capitalism. The cycle looks for simple as an entrepreneur will prepare the details and then submit the proposal to an investor. If after rounds of meetings, everything is sound and both parties have agreed on the details, then the funds are released and the business can begin.

But the venture capital cycle is not just for startups. The same thing can also be done to help expand an existing business. The same details are prepared by the person with the hopes that the creditor will approve the request.

The time it takes to do the research to the moment the business becomes a reality takes months. This is because the entrepreneur will have to do the research first. This means checking on the feasibility of the business given the location and the market, the cost of the machines, sales projections and of course the return of investment.

When this is ready, the proposal is sent out to a list of prospective partners. Some people will respond quickly while there are those who don’t. This is because of the other proposals given by other entrepreneurs. There is usually a meeting that will happen if the documents submitted are promising. This will give the investor an idea of who the entrepreneur is. Some investors feel a good vibe and take it from there while those who don’t will turn down the proposal.

An effective way to make a good impression will be by answering each question instead of stuttering there which does no help at all. It won’t take long anymore after that to hear a response from the investor. The answer is either a yes or a no which could make the entrepreneur happy or strive harder.

Terry Fitzroy


Business needs money to grow and thrive but their business plan is not always understood by traditional banking who is not keen on risk and has criteria that isn’t generally conducive to building a better business. That’s where venture capital can help. But what is venture capital?

Venture capital keeps business booming! It is a way that new business can get start up capital and begin to thrive and it’s a way that established business could expand. That’s because venture capitalists are looking for new and innovative ventures that have the potential to have huge yields. They are not interested as much in businesses that are already flourishing they are interested in expansions that have a risk attached to them and to restructuring. Think of them sort of like a risk junkie that needs a fix.

Venture capital is money that a venture capitalist puts forward to a business venture in return for having a stake in the company. Venture capital is not a loan. Venture capitalists invest in hopes that there will be a big yield in the future that will make them a whole lot of money. That means whatever the future profits are the venture capitalist will share in it.

There is no question that venture capital is risky but it is also the main source of funding for start up companies that have few other sources they can rely on. It’s a well known fact that those with ideas have no money and those with money are often lacking ideas so venture capital is a great way to marry up the two in a way that benefits both parties.

When venture capitalists look for venture capital investments they look for a company that is small and new with a very promising future. In this way they can bring very little cash to the table and have the chance of making millions if all goes well. Although venture capitalists take big risks the gains can also be enormous.

Venture capitalists have their own team that spends their time watching what’s happening in the business front. They watch for companies that are struggling and very vulnerable but have extreme growth potential. Other capitalists will enlist the services of a private equity firm, or something similar, which has the job of matching up entrepreneur with venture capitalist.

Having an idea and a business plan is what entrepreneurs do. They are also a breed of individuals that are willing to take risk, and they are willing to lose everything, because they are confident their idea is sound and will make them money. Thankfully the venture capitalists couldn’t be bothered to come up with their own idea of what to do with their money instead leaving the ideas to you while they become the investor.

Now that you know what venture capital it, do you think it is right for your new business? Do seriously consider it, because venture capital is a way to catapult your business into an entirely different dimension

expertinabox

Silicon Valley entrepreneur and venture capitalist, Guy Kawasaki, gave a speech at StartWorks, Silicon Valley in Spring 2008. This is part 2 in a 3-part series.
(c) 2008 John Montgomery. Film by Expert In A Box.

fundingpost

This is some feedback from the entrepreneurs who pitched to Venture Capital and Angel Investors at FundingPosts Perfect Venture conference in October 2006 in NYC. The next Perfect Venture Conference in on November 3 & 4, 2008 in NYC. www.FundingPost.com/pvc

uhyadvisors

This segment of UHY’s Business in the Eye of the Storm details raising venture capital. Visit www.businessintheeyeofthestorm.com for more information and other informative videos.