Venture Capital Magazine

Dennis Robertson




Venture Capital is a specific term that refers to funding obtained from a venture capitalist. These are professional serial investors and may be individuals or part of a firm. Often venture capitalists have a niche based on business type and or size and or stage of growth. They are likely to see a lot of proposals in front of them (sometimes hundreds a month), be interested in a few, and invest in even fewer. Around 1-3% of all deals put to a venture capitalist get funded. So, with the numbers that low, you need to be clearly impressive.

Growth is usually associated with access to, and conservation of cash while maximising profitable business. People often see venture capital as the magic bullet to fix everything, but it isn’t. Owners need to have a huge desire to grow and a willingness to give up some ownership or control. For many, not wanting to lose control will make them a poor fit for venture capital. (If you work this out early on you might save a lot of headaches).

Remember, it’s not just about the money. From the perspective of a business owner, there is money and smart money. Smart money means it comes with expertise, advice and often contacts and new sales opportunities. This helps the owner, and the investors grow the business.

Venture Capital is just one way to fund a business and in fact it is one of the least common, yet most often discussed. It may or may not be the right option for you (a discussion with a corporate advisor might help you decide what is the right path for you).

Here’s a few other options to consider.

Your Own Money – many business are funded from the owner’s own savings, or from money drawn from equity in property. This is often the simplest money to access. Often an investor would like to see some of the owner’s fund in the company (“skin in the game”) before they’d consider investing.

Private Equity – Private Equity and Venture Capital are almost the same, but with a slightly different flavour. Venture Capital tends to be the term used for an early stage company and Private Equity for a later stage funding for further growth. There are specialists in each area and you’ll find different companies with their own criteria.

FF & F - Family, Friends and Fools. Those closer to the business and often not sophisticated investors. This type of money can come with more emotional baggage and interference (as opposed to help) from its providers, but may be the fastest way to access smaller amounts of capital. Often multiple investors will make up the overall amount needed.

Angel Investors – The main business angels vary from venture capitalists in their motives and level of involvement. Often angels are more involved in the business, providing ongoing mentorship and advice based on experience in a particular industry. For that reason, matching angels and owners is critical. There are substantial easily locatable networks of angels. Pitching to them is no less demanding than to a venture capitalist as they still review hundreds of proposals and accept only a handful. Often the demands around exit strategies are different for an angel and they are satisfied with a slightly longer term investment (say 5-7 years compared to 3-4 for a venture capitalist).

Bootstrapping – growing organically through reinvesting profits. No external capital injected.

Banks – banks will lend money, but are more concerned about your assets than your business. Expect to personally guarantee everything.

Leases – this may be a way to fund particular purchases that allow for expansion. They will normally be leases over assets, and secured by those assets. Often it is possible to lease specialist equipment that a bank would not lend on.

Merger / Acquisition Strategy – you may seek to acquire or be acquired. Generally even a merger has a stronger and a weaker partner. Combining the resources of two or more companies can be a path to growth – and when it is done with a company in the same business, can make a lot of sense – on paper at least. Many mergers suffer from differences in culture and unforeseen resentments that can kill the benefits.

Inventory Financing – specialist lenders will lend money against inventory you own. This may be more expensive than a bank, but might allow you to access funds you could not have otherwise.

Accounts Receivable Financing / Factoring – again a specialist area of lending that may allow you to tap into a source of funds you didn’t know you had.

IPO – this is normally a strategy after some initial capital raising and having proven a business is viable through the development of a track record. In Australia there are various ways to “list”. They are useful for raising larger amounts of money ($50m and up) as the costs can be quite high ($1m plus).

MBO (Management Buy Out) – This tends to be a later stage strategy, rather than a startup funding strategy. In essence debt is raised to buy out the owners and investors. It is often a strategy to gain back control from outside investors, or when investors seek to divest themselves from the business.

One of the most important things to remember across all these strategies is that they all require a significant amount of work in order to make them work – from the way the business is structured, to dealings with staff, suppliers and customers – need to be examined and groomed so that they make the company attractive as an investment proposition. This process of grooming and derisking can take anywhere from three months to a year. It is often costly both in actual expenses (consultants, legal advice, accounting advice) as well as changing the focus of the owners from “sticking to the knitting” and making money within the business to a focus on how the business presents itself.

Dana Prince




Venture capital is a topic that always seems to bring both a light to the eyes of entrepreneurs and a confused look on faces at the same time. Most entrepreneurs believe that this particular source of funds is only appropriate for very large businesses with a proven track record that now have new ideas. In the mind of the hopeful entrepreneur, new start-ups and small businesses need not apply.

While true that many venture capital funds flow into businesses that have an established cash flow, there are also funds available for those just getting started or for medium sized businesses that are ready to expand into a new market niche. There is no denying that some of the venture capitalists do restrict their funding to only large corporations, but that is not the case for all of them.

The key to finding sources of this type of funding is getting professional assistance. Like any private club, you need someone to introduce you to the members. Entrepreneurs trying to gain entrance into the world of venture capital without help are probably going to be faced with stony silence.

The real question is whether you should even try to find venture capital with or without help. After all, if this is such a private club then maybe it isn’t worth trying to gain admittance. That’s not the right attitude to have at all.

A Perfect Blend

You know you need to find business funding from somewhere, but whoever said your startup funding must come from a single source? The answer, of course, is that there are no rules when it comes to putting together a package of funding. When you submit your business plan for funding, the venture capitalist may very well like your plan and want to help get your idea off the ground but also may not want to be the only funder. In that case, you may have to find some other sources of funding to blend with the amount the venture capitalist is willing to fund.

The best path to full funding is to piece together a variety of funds and venture capital will be one of the pieces. For example, you could consider looking for equity partners and apply for business loans. Angel investors are another excellent source of funding.

Keeping the Dream Alive

A business plan represents your best efforts to plan ahead for product development, market and financing. But it’s not written in stone and sometimes you have to be willing to compromise. That’s not to say you sell your soul to the devil and compromise your values or your dream. It just means you need to be willing to make some changes to your plan to satisfy potential investors. It’s your dream, but they are putting their money on the line.

When pursuing venture capital for startup funding, you will have to be willing to amend your business plan in some cases. Of course you are satisfied with your plan as it is, but it’s important to remember that investors are experienced and their ideas will probably improve your chances of success. And isn’t that what you want… success? If you still feel a bit uncomfortable with the idea of being flexible, then just consider the fact that the largest corporations grew on other people’s funding through accommodation. No business leader presents a business plan to investors and says, “This is it – no changes allowed.”

If giant corporations must be flexible then you know that you will have to be willing to compromise too.

Think Positive…Always

Venture capital is not just for large companies. It is for smaller and medium sized companies too. But though it is a great source of business funding, it is certainly not the only source. One of the mistakes new businesses make is putting all their efforts into landing one type of funding like business loans, and it is a huge disappointment and setback when the loans are turned down.

If you spend all your time pursuing one avenue of funding then a rejection is devastating. Instead of setting yourself up for disappointment, consider applying for multiple sources of funding like accepting equity partners or angel investors. You just need to know where, how and when and that is where a professional can help.

Jason Tapolci




Venture capital is money provided by professionals who invest alongside management in young, rapidly growing companies that have the potential to develop into significant economic contributors. Venture capital is an important source of equity for start-up companies.

Professionally managed venture capital firms generally are private partnerships or closely-held corporations funded by private and public pension funds, endowment funds, foundations, corporations, wealthy individuals, foreign investors, and the venture capitalists themselves.

Venture capitalists generally:

- Finance new and rapidly growing companies;
- Purchase equity securities;
- Assist in the development of new products or services;
- Add value to the company through active participation;
- Take higher risks with the expectation of higher rewards;
- Have a long-term orientation

When considering an investment, venture capitalists carefully screen the technical and business merits of the proposed company. Venture capitalists only invest in a small percentage of the businesses they review and have a long-term perspective. Going forward, they actively work with the company’s management by contributing their experience and business savvy gained from helping other companies with similar growth challenges.

Venture capitalists mitigate the risk of venture investing by developing a portfolio of young companies in a single venture fund. Many times they will co-invest with other professional venture capital firms. In addition, many venture partnership will manage multiple funds simultaneously. For decades, venture capitalists have nurtured the growth of America’s high technology and entrepreneurial communities resulting in significant job creation, economic growth and international competitiveness. Companies such as Digital Equipment Corporation, Apple, Federal Express, Compaq, Sun Microsystems, Intel, Microsoft and Genentech are famous examples of companies that received venture capital early in their development.

Private Equity Investing

Venture capital investing has grown from a small investment pool in the 1960s and early 1970s to a mainstream asset class that is a viable and significant part of the institutional and corporate investment portfolio. Recently, some investors have been referring to venture investing and buyout investing as “private equity investing.” This term can be confusing because some in the investment industry use the term “private equity” to refer only to buyout fund investing.

In any case, an institutional investor will allocate 2% to 3% of their institutional portfolio for investment in alternative assets such as private equity or venture capital as part of their overall asset allocation. Currently, over 50% of investments in venture capital/private equity comes from institutional public and private pension funds, with the balance coming from endowments, foundations, insurance companies, banks, individuals and other entities who seek to diversify their portfolio with this investment class.

What is a Venture Capitalist?

The typical person-on-the-street depiction of a venture capitalist is that of a wealthy financier who wants to fund start-up companies. The perception is that a person who develops a brand new change-the-world invention needs capital; thus, if they can’t get capital from a bank or from their own pockets, they enlist the help of a venture capitalist.

In truth, venture capital and private equity firms are pools of capital, typically organized as a limited partnership, that invests in companies that represent the opportunity for a high rate of return within five to seven years. The venture capitalist may look at several hundred investment opportunities before investing in only a few selected companies with favorable investment opportunities. Far from being simply passive financiers, venture capitalists foster growth in companies through their involvement in the management, strategic marketing and planning of their investee companies. They are entrepreneurs first and financiers second.

Even individuals may be venture capitalists. In the early days of venture capital investment, in the 1950s and 1960s, individual investors were the archetypal venture investor. While this type of individual investment did not totally disappear, the modern venture firm emerged as the dominant venture investment vehicle. However, in the last few years, individuals have again become a potent and increasingly larger part of the early stage start-up venture life cycle. These “angel investors” will mentor a company and provide needed capital and expertise to help develop companies. Angel investors may either be wealthy people with management expertise or retired business men and women who seek the opportunity for first-hand business development.

Investment Focus

Venture capitalists may be generalist or specialist investors depending on their investment strategy. Venture capitalists can be generalists, investing in various industry sectors, or various geographic locations, or various stages of a company’s life. Alternatively, they may be specialists in one or two industry sectors, or may seek to invest in only a localized geographic area.

Not all venture capitalists invest in “start-ups.” While venture firms will invest in companies that are in their initial start-up modes, venture capitalists will also invest in companies at various stages of the business life cycle. A venture capitalist may invest before there is a real product or company organized (so called “seed investing”), or may provide capital to start up a company in its first or second stages of development known as “early stage investing.” Also, the venture capitalist may provide needed financing to help a company grow beyond a critical mass to become more successful (“expansion stage financing”).

The venture capitalist may invest in a company throughout the company’s life cycle and therefore some funds focus on later stage investing by providing financing to help the company grow to a critical mass to attract public financing through a stock offering. Alternatively, the venture capitalist may help the company attract a merger or acquisition with another company by providing liquidity and exit for the company’s founders.

At the other end of the spectrum, some venture funds specialize in the acquisition, turnaround or recapitalization of public and private companies that represent favorable investment opportunities.

There are venture funds that will be broadly diversified and will invest in companies in various industry sectors as diverse as semiconductors, software, retailing and restaurants and others that may be specialists in only one technology.

While high technology investment makes up most of the venture investing in the U.S., and the venture industry gets a lot of attention for its high technology investments, venture capitalists also invest in companies such as construction, industrial products, business services, etc. There are several firms that have specialized in retail company investment and others that have a focus in investing only in “socially responsible” start-up endeavors.

Venture firms come in various sizes from small seed specialist firms of only a few million dollars under management to firms with over a billion dollars in invested capital around the world. The common denominator in all of these types of venture investing is that the venture capitalist is not a passive investor, but has an active and vested interest in guiding, leading and growing the companies they have invested in. They seek to add value through their experience in investing in tens and hundreds of companies.

Some venture firms are successful by creating synergies between the various companies they have invested in; for example one company that has a great software product, but does not have adequate distribution technology may be paired with another company or its management in the venture portfolio that has better distribution technology.

Length of Investment

Venture capitalists will help companies grow, but they eventually seek to exit the investment in three to seven years. An early stage investment make take seven to ten years to mature, while a later stage investment many only take a few years, so the appetite for the investment life cycle must be congruent with the limited partnerships’ appetite for liquidity. The venture investment is neither a short term nor a liquid investment, but an investment that must be made with careful diligence and expertise.

Types of Firms

There are several types of venture capital firms, but most mainstream firms invest their capital through funds organized as limited partnerships in which the venture capital firm serves as the general partner. The most common type of venture firm is an independent venture firm that has no affiliations with any other financial institution. These are called “private independent firms”. Venture firms may also be affiliates or subsidiaries of a commercial bank, investment bank or insurance company and make investments on behalf of outside investors or the parent firm’s clients. Still other firms may be subsidiaries of non-financial, industrial corporations making investments on behalf of the parent itself. These latter firms are typically called “direct investors” or “corporate venture investors.”

Other organizations may include government affiliated investment programs that help start up companies either through state, local or federal programs. One common vehicle is the Small Business Investment Company or SBIC program administered by the Small Business Administration, in which a venture capital firm may augment its own funds with federal funds and leverage its investment in qualified investee companies.

While the predominant form of organization is the limited partnership, in recent years the tax code has allowed the formation of either Limited Liability Partnerships, (“LLPs”), or Limited Liability Companies (“LLCs”), as alternative forms of organization. However, the limited partnership is still the predominant organizational form. The advantages and disadvantages of each has to do with liability, taxation issues and management responsibility.

The venture capital firm will organize its partnership as a pooled fund; that is, a fund made up of the general partner and the investors or limited partners. These funds are typically organized as fixed life partnerships, usually having a life of ten years. Each fund is capitalized by commitments of capital from the limited partners. Once the partnership has reached its target size, the partnership is closed to further investment from new investors or even existing investors so the fund has a fixed capital pool from which to make its investments.

Like a mutual fund company, a venture capital firm may have more than one fund in existence. A venture firm may raise another fund a few years after closing the first fund in order to continue to invest in companies and to provide more opportunities for existing and new investors. It is not uncommon to see a successful firm raise six or seven funds consecutively over the span of ten to fifteen years. Each fund is managed separately and has its own investors or limited partners and its own general partner. These funds’ investment strategy may be similar to other funds in the firm. However, the firm may have one fund with a specific focus and another with a different focus and yet another with a broadly diversified portfolio. This depends on the strategy and focus of the venture firm itself.

Corporate Venturing

One form of investing that was popular in the 1980s and is again very popular is corporate venturing. This is usually called “direct investing” in portfolio companies by venture capital programs or subsidiaries of nonfinancial corporations. These investment vehicles seek to find qualified investment opportunities that are congruent with the parent company’s strategic technology or that provide synergy or cost savings.

These corporate venturing programs may be loosely organized programs affiliated with existing business development programs or may be self-contained entities with a strategic charter and mission to make investments congruent with the parent’s strategic mission. There are some venture firms that specialize in advising, consulting and managing a corporation’s venturing program.

The typical distinction between corporate venturing and other types of venture investment vehicles is that corporate venturing is usually performed with corporate strategic objectives in mind while other venture investment vehicles typically have investment return or financial objectives as their primary goal. This may be a generalization as corporate venture programs are not immune to financial considerations, but the distinction can be made.

The other distinction of corporate venture programs is that they usually invest their parent’s capital while other venture investment vehicles invest outside investors’ capital.

Commitments and Fund Raising

The process that venture firms go through in seeking investment commitments from investors is typically called “fund raising.” This should not be confused with the actual investment in investee or “portfolio” companies by the venture capital firms, which is also sometimes called “fund raising” in some circles. The commitments of capital are raised from the investors during the formation of the fund. A venture firm will set out prospecting for investors with a target fund size. It will distribute a prospectus to potential investors and may take from several weeks to several months to raise the requisite capital. The fund will seek commitments of capital from institutional investors, endowments, foundations and individuals who seek to invest part of their portfolio in opportunities with a higher risk factor and commensurate opportunity for higher returns.

Because of the risk, length of investment and illiquidity involved in venture investing, and because the minimum commitment requirements are so high, venture capital fund investing is generally out of reach for the average individual. The venture fund will have from a few to almost 100 limited partners depending on the target size of the fund. Once the firm has raised enough commitments, it will start making investments in portfolio companies.

Capital Calls

Making investments in portfolio companies requires the venture firm to start “calling” its limited partners commitments. The firm will collect or “call” the needed investment capital from the limited partner in a series of tranches commonly known as “capital calls”. These capital calls from the limited partners to the venture fund are sometimes called “takedowns” or “paid-in capital.” Some years ago, the venture firm would “call” this capital down in three equal installments over a three year period. More recently, venture firms have synchronized their funding cycles and call their capital on an as-needed basis for investment.

Illiquidity

Limited partners make these investments in venture funds knowing that the investment will be long-term. It may take several years before the first investments starts to return proceeds; in many cases the invested capital may be tied up in an investment for seven to ten years. Limited partners understand that this illiquidity must be factored into their investment decision.

Other Types of Funds

Since venture firms are private firms, there is typically no way to exit before the partnership totally matures or expires. In recent years, a new form of venture firm has evolved: so-called “secondary” partnerships that specialize in purchasing the portfolios of investee company investments of an existing venture firm. This type of partnership provides some liquidity for the original investors. These secondary partnerships, expecting a large return, invest in what they consider to be undervalued companies.

Advisors and Fund of Funds

Evaluating which funds to invest in is akin to choosing a good stock manager or mutual fund, except the decision to invest is a long-term commitment. This investment decision takes considerable investment knowledge and time on the part of the limited partner investor. The larger institutions have investments in excess of 100 different venture capital and buyout funds and continually invest in new funds as they are formed.

Some limited partner investors may have neither the resources nor the expertise to manage and invest in many funds and thus, may seek to delegate this decision to an investment advisor or so-called “gatekeeper”. This advisor will pool the assets of its various clients and invest these proceeds as a limited partner into a venture or buyout fund currently raising capital. Alternatively, an investor may invest in a “fund of funds,” which is a partnership organized to invest in other partnerships, thus providing the limited partner investor with added diversification and the ability to invest smaller amounts into a variety of funds.

Disbursements

The investment by venture funds into investee portfolio companies is called “disbursements”. A company will receive capital in one or more rounds of financing. A venture firm may make these disbursements by itself or in many cases will co-invest in a company with other venture firms (“co-investment” or “syndication”). This syndication provides more capital resources for the investee company. Firms co-invest because the company investment is congruent with the investment strategies of various venture firms and each firm will bring some competitive advantage to the investment.

The venture firm will provide capital and management expertise and will usually also take a seat on the board of the company to ensure that the investment has the best chance of being successful. A portfolio company may receive one round, or in many cases, several rounds of venture financing in its life as needed. A venture firm may not invest all of its committed capital, but will reserve some capital for later investment in some of its successful companies with additional capital needs.

Exits

Depending on the investment focus and strategy of the venture firm, it will seek to exit the investment in the portfolio company within three to five years of the initial investment. While the initial public offering may be the most glamourous and heralded type of exit for the venture capitalist and owners of the company, most successful exits of venture investments occur through a merger or acquisition of the company by either the original founders or another company. Again, the expertise of the venture firm in successfully exiting its investment will dictate the success of the exit for themselves and the owner of the company.

IPO

The initial public offering is the most glamourous and visible type of exit for a venture investment. In recent years technology IPOs have been in the limelight during the IPO boom of the last six years. At public offering, the venture firm is considered an insider and will receive stock in the company, but the firm is regulated and restricted in how that stock can be sold or liquidated for several years. Once this stock is freely tradable, usually after about two years, the venture fund will distribute this stock or cash to its limited partner investor who may then manage the public stock as a regular stock holding or may liquidate it upon receipt. Over the last twenty-five years, almost 3000 companies financed by venture funds have gone public.

Mergers and Acquisitions

Mergers and acquisitions represent the most common type of successful exit for venture investments. In the case of a merger or acquisition, the venture firm will receive stock or cash from the acquiring company and the venture investor will distribute the proceeds from the sale to its limited partners.

Valuations

Like a mutual fund, each venture fund has a net asset value, or the value of an investor’s holdings in that fund at any given time. However, unlike a mutual fund, this value is not determined through a public market transaction, but through a valuation of the underlying portfolio. Remember, the investment is illiquid and at any point, the partnership may have both private companies and the stock of public companies in its portfolio. These public stocks are usually subject to restrictions for a holding period and are thus subject to a liquidity discount in the portfolio valuation.

Each company is valued at an agreed-upon value between the venture firms when invested in by the venture fund or funds. In subsequent quarters, the venture investor will usually keep this valuation intact until a material event occurs to change the value. Venture investors try to conservatively value their investments using guidelines or standard industry practices and by terms outlined in the prospectus of the fund. The venture investor is usually conservative in the valuation of companies, but it is common to find that early stage funds may have an even more conservative valuation of their companies due to the long lives of their investments when compared to other funds with shorter investment cycles.

Management Fees

As an investment manager, the general partner will typically charge a management fee to cover the costs of managing the committed capital. The management fee will usually be paid quarterly for the life of the fund or it may be tapered or curtailed in the later stages of a fund’s life. This is most often negotiated with investors upon formation of the fund in the terms and conditions of the investment.

Carried Interest

“Carried interest” is the term used to denote the profit split of proceeds to the general partner. This is the general partners’ fee for carrying the management responsibility plus all the liability and for providing the needed expertise to successfully manage the investment. There are as many variations of this profit split both in the size and how it is calculated and accrued as there are firms.

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ABG Capital

Thomas Ajava




It goes without saying that venture capital firms are severely stressed at the moment. Funding opportunities are simply way down and this is putting a major cramp on businesses looking to take the next step. Are there any alternatives to venture capital funds in today’s markets? Yes. Angel investors are becoming very popular choices.

What is an angle investor? Although not directly delivered by God, they can sometime seem like the answer to a prayer. In many ways, they act in very much the same way as a venture capital fund. The biggest difference is an angel investor is usually one person who is very wealthy and looking for very profitable potential investments.

The typical angel is someone who is retired from the business world for the most part. They probably built their business up and either sold it off or made so much money that they now have the ability to look for alternative investments. They understand how to ramp a business up and are more willing to work with a business than traditional investors.

How does the investment occur? Well, they are usually going to want a piece of ownership to collateralize their loan. The company needs to be valued and then a percentage of it put up in exchange for an investment amount. This is actually a good thing for most businesses. Why? With a vested interest, the angel will usually start getting involved with the business and lend their years of experience. Also, they will often introduce the business to parties they had previous relationships with, parties the business would usually have no chance of getting in front of.

Is there a downside to angel investors? Yes. The relationship has more of a personal feel to it than with venture capital, even though funds usually assign a point person to their contributions. Relationships can go bad, particularly if the business does not perform as desired. This can lead to conflict and litigation. Still, it is a risk most businesses are willing to take on, particularly in this financial environment.

There is a flipside to the “relationship problem” with angels. If the investment works out for the angel, you are usually set for life when it comes to future financing needs. Why? Well, the angel in question will give you the benefit of the doubt in future deals. More importantly, angels know other angels. They talk frequently. A positive referral from one angel to another is worth its weight in gold. Given the price of gold these days, you know that is a good thing!

Adam Hoeksema




Raising venture capital is nearly impossible as it is, don’t hinder yourself by committing any of these 3 major venture capital financing no-no’s.

Long Business Plan - Common sense will tell you that venture capitalists receive hundreds of business plans every year. Do you really think that they enjoy reading through 50 pages of fluff? Make sure to cut to the chase when writing a business plan for venture capitalists. Most venture capitalists will be able to make a decision as to whether or not they want to meet with you after reading your 2 page executive summary – don’t bore them with a thick business plan.

Long Investor Presentation - If you are so lucky to be asked to present to a group of venture capitalists, your meeting will probably be scheduled for 1 hour. If you spend 45 minutes to talk through your presentation you are only leaving yourself 15 minutes for questions. It is in your best interest to keep the presentation 10 15 minutes so that you have time to dialogue and allay all fears or concerns that the potential investors might have.

Long Term Exit Strategy - Venture capitalists want to hit it big and they want to hit it fast. If you go in with the assumption that it might take 10 years for an exit event you will probably chase away most venture capitalists. There are so many great ideas out there that investors could always find a more lucrative business venture in a faster time period than you are offering. You should at least go in with the goal of an exit event in three to five years.

There is so much that goes into the venture capital process, but make sure that you don’t make these 3 deadly mistakes or your venture may meet its demise.

Amir Dagan




The venture capital funding world has entered a new sector – this is the always changing sector of Sports and Entertainment. Investments in the entertainment world have been around for a few years already, like the enormous $100 Million investment in the Da Vinci Code film in 2005. And (in a humoristic way) if we remember the book “The Godfather”, also there we can find an “investment” in the famous singer Johnny Fontane, a godson of Corleone’s, who has come from Hollywood to ask the Godfather’s help in getting a movie role that will revitalize his flagging career. Jack Woltz, the head of the studio, will not give Fontane the part, but Don Corleone (The Godfather) explains to Johnny: “I’m gonna make him an offer he can’t refuse.”

The costs estimates for creating and marketing a film, given by http://www.imdb.com, the 2005 average marketing cost of $36 million a film. (Marketing costs may be higher for larger films but in many cases sponsors help settle these costs.) the calculation for what the return is from an investment in a film includes the factor that a studio naturally gets the proceeds from approximately half the tickets sold at the USA box office, and the overall take from the box office is roughly one-third of the money a studio earns after a film has gone to play overseas and becomes a DVD or movie on pay TV.

The new sector of sports investments is receiving millions of dollars. Recent investments in sports goods producers and distributors include an investment of $68 Million committed by Allied Capital Corporation to support the buyout of Augusta Sportswear Group by private equity firm Quad-C Management. Augusta was founded in 1977, and is among the largest suppliers of blank athletic uniforms in the U.S. The company sells over 52,000 SKUs of team uniforms, athletic apparel, outerwear and school-inspired products to over 40,000 customers, consisting of uniform suppliers, custom decorators and promotional products distributors.

Another recent investment is of $2 Million in Golf Club Maker Nickent in Equity Investment. “We are pleased to announce this investment in Nickent,” commented Anthony Moore, Co-Chairman and President of Equus and Chairman of Nickent. “This, combined with our debt financing in June, positions the Fund to receive dual benefits of current income and potential capital gains. We look forward to working with Nickent and its experienced management team.”

Nickent is a market leader in the rapidly expanding, hybrid club segment of the golf industry and is an emerging leader in game-enhancement technology.

All these investments are happening now. One last example is Seatwave. Seatwave, Europe’s largest fan-to-fan ticket exchange, is an online marketplace for buying and selling tickets for theatre, sports, music and other live events. Seatwave recently announced it has raised $25 million in Series C funding led by Fidelity Ventures. Fidelity Ventures is joined by existing investors Atlas Venture, Mangrove Capital Partners and Adinvest. Seatwave was launched in 2007 and has more than 500,000 tickets on sale at any given time, 25 times more than eBay.

Thomas Ajava




Finding financing to take a business to the next level can be a challenge in these less than robust financial times. The question is simply where do you look for desperately need money? The venture capital market is on the ropes, so most are looking to angel investors. The question you should have is how are these angel investor deals set up?

Let’s start with the basics. What is an angel investor? The typical profile is a wealthy individual that is readily familiar with building businesses because that is where they made their money. As an angel, they are looking for an opportunity to help another business along in exchange for a very nice return on their investment. They are not doing this for charity and you should realize as much right up front.

So, let’s assume you’ve found the angel for your business. How exactly will the deal be arranged? Well, the first thing to realize is everything is negotiable with them. That includes everything down to the type of paper the agreement is written on. If things become that detailed, you probably are in for a mess but I digress.

The typical angel investment deal is done as a collateralized loan. The investor provides you with a set amount of cash as per the negotiation. A valuation of the company is done at the same time, usually by an independent third party. The amount of the investment is then calculated as a percentage of the ownership of the company. That amount of stock is then set aside in escrow as collateral for the loan. If the loan is not repaid per the deal, the angel takes the stock and then you typically have a devil on your hands who is going to take a very personal interest in how the business is run.

What about the payout on the loan? Well, this is a private money loan. Every angel is different, but they are expecting a sizeable return on their loan. The good news is the business rarely has to make monthly payments. Instead, there may be milestone payments or just one lump sum at the end of the time period in question. Whichever is done, the loan will be repaid with a sizeable amount of interest or points to the angle. If this is done, the angel and business then go their own ways.

Stephan Teak




The average person has different reasons for starting a business. Some just want to make a comfortable living while others want to go big by taking their company public. For those that start out with a plan to go big, venture capital often represents the pot of gold that can get them there.

What is venture capital? It comes in different forms, but is typically a fund of money that has been built up by investors willing to take on big risk in exchange for big returns on their money. The funds usually have $100 million or more and invest in anywhere from five to 15 companies.

New and small businesses have one fundamental problem – they have difficulty getting financing. Most traditional banks will not touch a business without a track record of at least two years and a health financial profile. These standards are usually well beyond the reach of most small and new businesses. Venture capital seeks to fill this gap.

If you are considering venture capital as a funding source in your business plan, you need to understand a few things first. Most venture capital funds are interested in investing in technology based businesses. If you do not fall within this niche, you are going to have a difficult time getting funding. It is not impossible, but you definitely will have more hurdles to climb.

A secondary issue has to do with the age of your business. There is a common misconception that venture capitalist are looking to fund brand new companies or good business ideas. This happens occasionally, but most venture capitalists are looking for companies that are three to five years old. This suggests the companies have competent management and a plan that has some hope of success.

A third issue to keep in mind is turn around time. The investors in venture capital funds are looking for big returns on their money. They are willing to take big risks, but they are not willing to wait. If you pick up venture capital funding, you will be expected to sell the company or take it public in three to five years. The additional capital may give you some financial relief, but the pressure will be on to make things happen.

The final issue to consider with this funding is the overall catch-22. On the positive side, the money provided by venture capital funding can make the difference between the business being wildly successful and failing completely. This money, however, comes with a price. Simply put, the business will no longer be “yours”. It will be “ours” and you can be the venture capitalists are going to have strong opinions on how things should be run. Your long term goals might not match theirs. If push comes to shove, theirs will probably win out.

Is venture capital the pot of gold a business needs to go big? In many cases, it is. Just make sure you understand what you are getting into. If you do, this funding can be a win-win.

Muhammad Haidar




What is Venture Capital (VC):