Venture Capital Magazine

Low Jeremy


Arkansas as a state provides an excellent performance in its economic and developmental growth, better enhanced by its flourishing expansion in venture capitals in every aspect of the latest technologies, and other innovations over the past years. The positive results in entrepreneurial venture funding has regularly been traced and recorded by the Regional and National (federal) government with such consistent standards that never fail; making Arkansas a benchmark model perspective of ultimate communal prosperity in the nearest future among the rural regions of America.

Speculative economic prosperity performance all over Arkansas inspires investors and financiers to target funding new entrepreneurships that overviews great contributory factor to the economy of the U.S. as a whole. In times of this age’s crisis, no one will contend over seeing the prospering future of Arkansas State.

Today, every entrepreneurial end and outstretch financing is gird on the development of new business that are aimed to be started on various fields of development and visions; or, to those that’d already been launched but just need financial assistance either from the government, or groups of venture capitalists from all corners of the region and States.

By this year’s turn over into 2007, there are several meetings, conferences, and forums aside from the normal seasonal meetings or venues of venture capitalists groups that aim to establish more steadfast hold on all kinds of venture capitals on jurisdictions allowed by the government under Arkansas benchmark umbrella in wide-range scope coverage.

Lincoln City in Nebraska is never an exception to be a target of interest, for the place offers one of the best potentials for expansion on educational environment, and all that concerns about educating the citizenry of the county. The people of Nebraska focus with interest to the education of the youth, and their standards never go beyond the unprecedented in livelihood.

Predominant values in honesty could be observed among its citizens, a good contributory factor to progress. It makes the place an interesting business subject of study on how it could be assisted correspondingly, in terms of project priorities that’ll serve best common interest and needs.

The need for the strategic development program that catered Arkansas to be the focal subject for the U.S. Regional and National Entrepreneurships funding for its overall business progress, started when in 1999, the Winthrop Rockefeller Foundation conveyed to strengthen collaborations of the State, Regional and National Financiers; to promote awareness, and critical issues in the face that Arkansas has been subjected to be aligned to all the grant-making goals of the foundation’s program.

The unique assets of the Arkansas community, coupled with good business atmosphere and environment fit for business to flourish is outstanding that’ll enhance to capture global interest in future developments of its technologies. California is home to some of the biggest computer companies in the world. In fact, not far away are schools like Stanford and Berkeley where some of the best engineers graduated.

Given the close proximity of the companies and these institutions, it is no surprise that a lot of new software available is because of the generosity of capital venture investors. People don’t have to move to all the way to the west coast to get funding when it comes to starting a new business. This is because in the Midwest, there are also people and companies out there who are willing to support anyone who has a good idea.

Take for example Arkansas Capital Corporation Group. Four years ago, a fund was established to help young entrepreneurs. It has between $2 to $5 million and those who qualify are able to get $50,000 to $500,000 depending on the commercial potential of the invention. That is a lot of money, which is more than enough to get anyone started on a business. Should the individual need more, the fund manager can even get additional help from the federal government.

In fact, it has already helped some people establish a bed and breakfast, a health club, a house manufacturing company and a pharmaceutical company. The only thing the individual should do is engage in a lot of research, make a business plan and then present it to the corporation. If after careful review the idea has potential, then a fund manager will process the papers and then release the funds.

The help extended by the company doesn’t end when the money is given. This will continue, as the fund manager will also assist the entrepreneur in making certain decisions in order for it to succeed. There are also individuals who have a lot of money that are also willing to help if the person has an idea about starting a business. The Arkansas Capital Corporation group, which has been in the industry for more than 40 years, can help make that dream happen.

This can be seen in its commitment of helping the people of Arkansas regardless of how small or big it is. So, those who have an idea should start doing the research and finalize the business plan because this is the only way that an investor like this company or others will be able to take the entrepreneur seriously regarding the request for the additional funds.

John Lux


We in corporate finance and venture finance often lose site of the goals and purposes of what we do.

We can easily see that it does not matter how the money is raised; there must be a fair exchange for the team, for the technology, and for the money.

The real goal of corporate finance is to see that the company has more than enough money to achieve its goals.

Now that we say it, we know it could not be anything else. What else could it be?

In seeing this, we know immediately what venture capital is not.

Venture capital is not giving the company too little money to succeed so that you can buy it up cheap later, stealing all of the good work of the entrepreneurial team.

Venture capital is not loading the entrepreneurial team down with straightjacket agreements.

Venture capital is not setting a cheap value on the company so you can make a huge gain out of a share of the company that should belong to the people that daily contribute their sweat.

True capital would not keep control of the company to wrest control from those executives who know best how to manage. The real purpose of the capitalist is not to second guess management. Management, not capital, is on the firing line and best knows how to achieve the goals of the company.

True corporate finance is seeing that the company has more money than it needs. True venture capital motivates and encourages the team. True venture capital values the team and acts accordingly. True venture capital is part of the team.

True corporate finance is more than capital. It is a partnership of equals; it is support that is more than financial; It is on the tam that shoulders the burdens and fights the fights.

Only true venture capital is entitled to share in the rewards of the team.

When a company is adequately financed, the entrepreneurs and their team are not deprived of enough pay to support themselves and their families. They are well rewarded for their work by industry standards. They are not deprived of pay or working for a pittance so that the venture capitalists can have a larger return on their money.

A company only has enough money when it has enough money to meet the unknown.

A company with good finance can afford those things it needs to win in the combat of business.

Real finance gives these things to the company.

The real goal of any venture capital is to see that the company has more than enough money to achieve its goals.

Low Jeremy


Arkansas is a very diverse state. You have a lot of things going on for this state. The state has a lot to offer to visitors, travelers and even for entrepreneurs. You can see in the state a lot of opportunities for outdoor adventures such as cavern or cave tours and a lot of mountain trails and scenic routes to hike, walk and drive.

And for entrepreneurs, the state opens up a lot of opportunities. Arkansas is rich with small towns that lure not only travelers but can be an investor’s new base of business as well, such as Fox and Charlotte towns.

Venture capital is a great way for small businesses to get the funding they need. Venture capital is more commonly sponsored by the wealthy investors and at times professionally managed investment fund. Government backed Small Business Investment Corporations (SBICs), or their subsidiaries like different investment banking firms, insurance companies, or corporations also act as sources of venture capital.

What these investors do is that they invest their money on companies that are still starting up and seems to have great potential of becoming big and earning a lot in profits.

However, venture capital could be somewhat difficult for small businesses to obtain, without the proper proposal that is. It is always standard procedure for investors to require entrepreneurs a formal proposal where the latter can based a proper evaluation of the business’ potential. Venture capital brings several advantages to small businesses.

Among them include management assistance and lower costs, these above the funds the venture capitalists put into their businesses. However, venture capital is still not the lone answer to all the problems small businesses have especially regarding their capitalization. Venture capital is only one strategy, there are other ways to settle things and improve the capital outlay of a small business.

But since the venture capitalist is investing on mostly speculations, the risks are great. That is why venture capital is also called risk capital. This is why investors study extremely well the proposals of small businesses before approving or giving them their investments.

To top it off, investing on such companies is basically a stand alone thing. The government does not provide any form of protection for venture capitalists whose ventures have become a failure. Still there are a lot of areas where venture capitalists choose to invest. This widens their scope and small businesses can find their place. Most of the investments venture capital look favorably upon includes industries and technology areas.

Every country’s economy has always been enhanced by the growth in its entrepreneurship; done so, with high return of investments (capital venture) at 100% or more. The start of the capital venture in the United States came about when a consequence of a very stiff structural restrictions in their banking system in the 1930s, resulted to deprive them of the private merchant industry that was uncommon to a highly developed nation such as the U.S.

The making of the Small Business Investment Act of 1958 paved the way to allow the U.S. Small Business Administration (SBA) to give licenses to the Small Business Investment Companies (SBICs) for purposes of providing financial assistance and management to small entrepreneurships especially to beginners in business all over the United States.

Thus, Capital Venture has been professionally acknowledged; although in 1946 its start was gird toward investing at Digital Equipment Corporation by the American Research and Development Corporation (AR&D), founded by General Georges Doriot, first American to promote the capital venture industry. Its tremendous success that made double investment capital in subsequent years elevated the rise of numerous other venture groups, that pushed licensing legal under the Federal laws, aforementioned atop this paragraph.

A number of associations and clubs were founded, and posted capital venture clubs/groups in various states, with respective visions to finance not only small-time business amateurs; but, invest bigger capital on some mining industries, manufacturing some latest technologies, projects in the educational system (schools), health affiliated structures, numerous clinical equipments, and many modern-day demand in novelties.

A close study on Northwest Arkansas concerning project breakthrough in infrastructures and highly trained-skilled manpower on the latest technologies, were aired out to their legislature. The unprecedented increase of population towards 2020 in this side of the U.S need a pressing inflow of financing that will be held as a subject to contend within, the right selection of capital venture investors to subsidize bulk of expense on researches, and to develop better-trained workers for the projects in focus.

Places in subject for these developments include the big cities of Knoxville, capital of Tennessee; Austin, Texas, and Huntsville, on which survey charts outpaced Benton and Washington counties in economic growth during the past 10 years. This has been relayed out by the Arkansas Capital Corporation Group as studies are held in forum on the economic outlook of the NW Arkansas.

The approval of creating the “Arkansas Capital Venture Funds” thru their legislature recently fronts best expectations of the opening of new businesses, and will be highlighted with the coming in of new private capital venture groups.

Pulling together of capitalization to the best advantage may even proceed to a better position to call the attention of the Universities around to increase the development of students on broad “research” that will eventually lead to open high-technology companies that may serve better opportunities on high-skilled, or better-paying jobs.

Low Jeremy


When people need to enlist the services of a company, that person will usually check for it in the phone directory. It is only after browsing through the names on the list that the individual will be able to get in touch with the firm that can do it.

The same thing also happens when getting help in starting a business. Though the numbers are not in the phone book, the entrepreneur will have to check magazines and online for those who are interested in funding a project so a business proposal can be sent. The business proposal should have a brief introduction of the company, the objective of the venture, the sales projection and most importantly, the timeline for the return of investment.

The entrepreneur will notice that some of those in the directory are leaders of some of the biggest corporations in the United States. This means these people have the experience, which will also come in handy when running the business.

After all, those who decide to go into a venture will have to give 30% of the company to the investor. This is because handing out money is not out of charity or for free and the other party has to get somehing from it making it a win-win for everybody. Those who do it online will first log on to the website and then give certain information. It is only after getting some details that a match can be made with someone who is willing to invest in the entrepreneur’s idea.

There is always a risk in starting any business. If the entrepreneur has submitted a proposal and this was turned down, the person should not give up because there are surely other names in the directory that can be sent a letter that will hopefully like the idea and then fund it.

If the person does not want to work for an employer anymore or just graduated from college and wants to be his or her own boss, , perhaps it is time to start a business. The entrepreneur can go to the bank and get a loan but with the help of an investor, the chances of this growing are much higher given that there is also someone there watching out for hurdles along the way. The choice is of going to the bank or looking for an investor using the capital venture directory is entirely up to the person.

Venture capitalism, a potentially beneficial form of investment for small businesses especially for technologies, industries, dot coms and biotech types of businesses.

For the first part of the year, venture capitalist industry has been going steady and it seems that venture capitalism is alive and well. Biotech, software, media and entertainment investments, telecommunications, and various internet-specific companies seem to be going well.

Despite the risks of venture capital, entrepreneurs still try to obtain approval of venture capital organizations to get hold of some money to finance their growth and development. Entrepreneurs from across the country take advantage of the growth of venture capital investing. Even in Jefferson County in Alabama, venture capitalism could flourish.

It so happens that Jefferson is the most densely populated area in the state of Alabama. There are a lot of potential things happening here and there could be several opportunities for venture capital organizations to invest in businesses in this part of Alabama.

Venture capital is a double edged sword. For the investor it could possible mean great profits if things turned out well. Investors will put their money on a company on the assumption that things will turn out well and that the company will do good in the near future reaping all the profits for them.

The money can be utilized by entrepreneurs for innovative enterprises or research. This works well especially with high technology companies. There is actually a great risk of loosing all the possible profit and as well as all the present investments that the venture capitalist has put forth so far.

So what does Jefferson County has installed for venture capitalists. Jefferson has a limited-form of home rule government. This system resulted to usable land use zoning, as well as better maintenance sewer systems and roads. Garbage disposal and taxation is quite ok too. Five years, that’s how much time capital investment analyses and capital source studies should be conducted. This is just enough time to test your product, service, market and process investment.

This is entirely better for both the entrepreneur and the investors. Particularly, the investor needs to know how stable the company will be. These analysis and studies can anticipate possible scenarios that can help the company and the investor through tough times. With proper planning, it is quite possible for both the entrepreneur and the investor to borrow long term and obtain equity placements, and other related major investments.

John Siegler


Throughout my career I have raised and deployed tens of millions of dollars in venture capital to build out products and infrastructure and expand our marketing reach for various ventures. As a business owner there are a series of important questions to answer as you continue to pursue greater market opportunities:

Question 1

When should we supplement our ability to internally fund growth with additional capital infusions? Considerations include business focus, valuation issues, and the availability of various capital sources.

Question 2

What are the implications of the various funding alternatives to important constituents (investors, management and our customers)? For example, debt takes a senior position in the capital structure to equity holders, and you will have various loan covenants and triggers relative to financial plans and balance sheet ratios. Make sure these are well understood as you are aggressively chasing market growth.

Question 3

How do you balance the competing interests of your stakeholders?

Question 4

What is the true cost of each potential source of capital?

Given our stage of development (post revenue, several successful products, positive cash flow), we’re able to consider securing a somewhat traditional bank line of credit. I say “somewhat” because, being a technology and content provider, we don’t have a lot of traditional assets to collateralize, and until recently, we haven’t had the cash flow to justify a bank line from commercial banks.

Fortunately, there are some great lenders for companies like us, including Silicon Valley Bank, Comerica, and a relatively new entrant that we’re quite impressed with, Square One.

These banks are looking to make a premium over traditional lenders through warrants and fees, and in establishing a long term banking relationship with a

hopefully growing new company.

In return, they are providing lower cost capital in the $500k-$2mm range to allow you to stretch into better valuation milestones. They are not a substitute for larger venture financing or in

situations where current cash flow can’t meet line repayment obligations.

In the “fixing to get ready” category, the banks will suggest putting together the following materials for your initial discussions:

- 2 years historical and YTD Financial Statements

- 2 Year (Current plus Next Year) Forecast Financials (Income statement, Balance Sheet, and Cash Flow Statement)

- Aged listings of A/R and A/P

- Current Capitalization Table

- Most recent Power Point Deck used in connection with fund-raising or Board communication (to gather a sense for the market opportunity, the competitive landscape, the technological differentiator(s), the Management Team, etc.) In addition to these, I’d add a few more (some obvious, some not so much):

In the obvious category, take care of the general housekeeping. Make sure you’re all caught up with tax and corporate compliance issues. These deals are all about credibility, and potentially they can be time sensitive.

As much as it can seem like it’s all about the numbers, the good ones in the venture-backed technology lending space are looking to the following in evaluating the application (in some order):

- Your venture partners. Are they excited about your growth prospects, or are they getting tired? And why do they feel that a line is more appropriate at this time than another venture round?

- The management team. Is it seasoned, well grounded and reasonable? Do the financial projections make sense, or do they look like an enormous hockey stick?

- Understanding the business opportunity. Your venture backers got in, but is it something the bankers can get excited about? And how much of a banking opportunity is it? As an entrepreneur, you need to be able to succinctly talk about your business, and you’re always selling. This is no exception. Again, with your feet firmly planted on the ground, be able to present this as an exciting opportunity. Start building those relationships early.

The longer they have to get to know you and watch the business, the more comfortable they will be.

One of our challenges is to value the true price of the line relative to other potential sources of credit. In addition to the hard costs (application fees, interest expense, etc.), the line has a finite life and must be repaid.

Assuming it is not refinanced, against a $500k line that is fully drawn down in the first year, you might

have about $150-200k in costs over the 4 year period (the draw down, plus say a 3 year repayment) for temporary access to $500k in Yrs 1-2, $300k in Year 3, and $150k in Year 4.

Surprising? Look at the breakdown:

Application fee – $15-25k (including legal)

Warrants – 3% of line ($45k in exercise price – value is up to you)

Interest costs – 12-14%/yr, or $60-75k in years 1-2, $40-50k in year 3, and $25k in year 4. True, you’re ideally providing your venture investors with a 35-40% ROI over that period, which compounds very quickly, and there are plenty of other strings attached.

But at least you’re not repaying that money over what might be a cash-constrained period, and your venture investors are all about value creation, not loan repayments. Oh, and if you secure a new venture round, new money is generally not fond of paying off prior obligations.

Marco Terry


Many business owners try to finance their growing businesses by going to venture capital or angel funding groups. Although both financing options provide a great way to finance a business, they are usually hard to qualify for. And furthermore, they all require that you give up some business equity in exchange for funds. That, needless to say, can be a very steep price to pay.

There are some business financing alternatives that can allow you to finance your business, almost as effectively, without having to give up any equity. As opposed to venture funding or angel funding, these options are easy to qualify for and do not require the endless documentation and due diligence that venture money requires..

However, these can only help you if you meet the following criteria:
1. Your business is established and has commercial (not consumer) clients
2. Your business invoices between $40K and $900K per month

These alternatives will help you if:
1. You need money to meet payroll, pay rent or pay supplier
2. Your customers pay you in 15 to 60 days
3. You need (or wish) your customers to pay you sooner

Your first option is called factoring (also known as invoice factoring). Factoring is ideal for businesses that cannot afford to wait 15 to 60 days to get paid by their clients. Factoring provides you with financing that is tied to your invoicing. Basically, the more your company invoices, the more financing you qualify for. This enables you to grow your company – many times exponentially – without having to give up equity.

Your second option is called purchase order financing. It works well for re-sellers, distributors, traders and wholesalers. Purchase order financing is ideal for business owners that have a large purchase order in hand, and who cannot afford to pay their suppliers to deliver the product. PO financing enables you to get a letter of credit, backed by the financing company, to pay your suppliers. This allows you to deliver on the purchase order and effectively make the sale. Usually, very little – if any – of your money is required for the transaction.

Both alternatives are easy to qualify for, take days (or a couple of weeks at most) to set up, and when used correctly allow you to grow your company exponentially.

Marco Terry


Many business owners try to finance their growing businesses by going to venture capital or angel funding groups. Although both financing options provide a great way to finance a business, they are usually hard to qualify for. And furthermore, they all require that you give up some business equity in exchange for funds. That, needless to say, can be a very steep price to pay.

There are some business financing alternatives that can allow you to finance your business, almost as effectively, without having to give up any equity. As opposed to venture funding or angel funding, these options are easy to qualify for and do not require the endless documentation and due diligence that venture money requires..

However, these can only help you if you meet the following criteria:
1. Your business is established and has commercial (not consumer) clients
2. Your business invoices between $40K and $900K per month

These alternatives will help you if:
1. You need money to meet payroll, pay rent or pay supplier
2. Your customers pay you in 15 to 60 days
3. You need (or wish) your customers to pay you sooner

Your first option is called factoring (also known as invoice factoring). Factoring is ideal for businesses that cannot afford to wait 15 to 60 days to get paid by their clients. Factoring provides you with financing that is tied to your invoicing. Basically, the more your company invoices, the more financing you qualify for. This enables you to grow your company – many times exponentially – without having to give up equity.

Your second option is called purchase order financing. It works well for re-sellers, distributors, traders and wholesalers. Purchase order financing is ideal for business owners that have a large purchase order in hand, and who cannot afford to pay their suppliers to deliver the product. PO financing enables you to get a letter of credit, backed by the financing company, to pay your suppliers. This allows you to deliver on the purchase order and effectively make the sale. Usually, very little – if any – of your money is required for the transaction.

Both alternatives are easy to qualify for, take days (or a couple of weeks at most) to set up, and when used correctly allow you to grow your company exponentially.

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.

Dave Kauppi


If you are an entrepreneur with a small technology based company looking to take it to the next level, this article should be of particular interest to you. Your natural inclination may be to seek venture capital or private equity to fund your growth. According to Jim Casparie, founder and CEO of the Venture Alliance, the odds of getting Venture funding remain below 3%. Given those odds, the six to nine month process, the heavy, often punishing valuations, the expense of the process, this might not be the best path for you to take. We have created a hybrid M&A model designed to bring the appropriate capital resources to you entrepreneurs. It allows the entrepreneur to bring in smart money and to maintain control. We have taken the experiences of several technology entrepreneurs and combined that with our traditional investment banker Merger and Acquisition approach and crafted a model that both large industry players and the high tech business owners are embracing.

Our experiences in the technology space led us to the conclusion that new product introductions were most efficiently and cost effectively the purview of the smaller, nimble, low overhead companies and not the technology giants. Most of the recent blockbuster products have been the result of an entrepreneurial effort from an early stage company bootstrapping its growth in a very cost conscious lean environment. The big companies, with all their seeming advantages experienced a high failure rate in new product introductions and the losses resulting from this art of capturing the next hot technology were substantial. Don’t get us wrong. There were hundreds of failures from the start-ups as well. However, the failure for the edgy little start-up resulted in losses in the $1 – $5 million range. The same result from an industry giant was often in the $100 million to $250 million range.

For every Google, Ebay, or Salesforce.com, there are literally hundreds of companies that either flame out or never reach a critical mass beyond a loyal early adapter market. It seems like the mentality of these smaller business owners is, using the example of the popular TV show, Deal or No Deal, to hold out for the $1 million briefcase. What about that logical contestant that objectively weighs the facts and the odds and cashes out for $280,000?

As we discussed the dynamics of this market, we were drawn to a merger and acquisition model commonly used by technology bell weather, Cisco Systems, that we felt could also be applied to a broad cross section of companies in the high tech niche. Cisco Systems is a serial acquirer of companies. They do a tremendous amount of R&D and organic product development. They recognize, however, that they cannot possibly capture all the new developments in this rapidly changing field through internal development alone.

Cisco seeks out investments in promising, small, technology companies and this approach has been a key element in their market dominance. They bring what we refer to as smart money to the high tech entrepreneur. They purchase a minority stake in the early stage company with a call option on acquiring the remainder at a later date with an agreed-upon valuation multiple. This structure is a brilliantly elegant method to dramatically enhance the risk reward profile of new product introduction. Here is why:

For the Entrepreneur: (Just substitute in your technology industry giant’s name that is in your category for Cisco below)

1. The involvement of Cisco – resources, market presence, brand, distribution capability is a self fulfilling prophecy to your product’s success.

2. For the same level of dilution that an entrepreneur would get from a VC, angel investor or private equity group, the entrepreneur gets the performance leverage of “smart money.” See #1.

3. The entrepreneur gets to grow his business with Cisco’s support at a far more rapid pace than he could alone. He is more likely to establish the critical mass needed for market leadership within his industry’s brief window of opportunity.

4. He gets an exit strategy with an established valuation metric while the buyer helps him make his exit much more lucrative.

5. As an old Wharton professor used to ask, “What would you rather have, all of a grape or part of a watermelon?” That sums it up pretty well. The involvement of Cisco gives the product a much better probability of growing significantly. The entrepreneur will own a meaningful portion of a far bigger asset.

For the Large Company Investor:

1. Create access to a large funnel of developing technology and products.

2. Creates a very nimble, market sensitive, product development or R&D arm.

3. Minor resource allocation to the autonomous operator during his “skunk works” market proving development stage.

4. Diversify their product development portfolio – because this approach provides for a relatively small investment in a greater number of opportunities fueled by the entrepreneurial spirit, they greatly improve the probability of creating a winner.

5. By investing early and getting an equity position in a small company and favorable valuation metrics on the call option, they pay a fraction of the market price to what they would have to pay if they acquired the company once the product had proven successful.

Let’s use two hypothetical companies to demonstrate this model, Big Green Technologies, and Mobile CRM Systems. Big Green Technologies utilized this model successfully with their investment in Mobile CRM Systems. Big Green Technologies acquired a 25% equity stake in Mobile CRM Systems in 1999 for $4 million. While allowing this entrepreneurial firm to operate autonomously, they backed them with leverage and a modest level of capital resources. Sales exploded and Big Green Technologies exercised their call option on the remaining 75% equity in Mobile CRM Systems in 2004 for $224 million. Sales for Mobile CRM Systems were projected to hit $420 million in 2005.

Given today’s valuation metrics for a company with Mobile CRM Systems’ growth rate and profitability, their market cap is about $1.26 Billion, or 3 times trailing 12 months revenue. Big Green Technologies invested $5 million initially, gave them access to their leverage, and exercised their call option for $224 million. Their effective acquisition price totaling $229 million represents an 82% discount to Mobile CRM Systems’ 2005 market cap.

Big Green Technologies is reaping additional benefits. This acquisition was the catalyst for several additional investments in the mobile computing and content end of the tech industry. These acquisitions have transformed Big Green Technologies from a low growth legacy provider into a Wall Street standout with a growing stable of high margin, high growth brands.

Big Green Technologies’ profits have tripled in four years and the stock price has doubled since 2000, far outpacing the tech industry average. This success has triggered the aggressive introduction of new products and new markets. Not bad for a $5 million bet on a new product in 1999. Wait, let’s not forget about our entrepreneur. His total proceeds of $229 million are a fantastic 5- year result for a little company with 1999 sales of under $20 million.

MidMarket Capital has borrowed this model combining the Cisco hybrid acquisition experience with our investment banking experience to offer this unique Investment Banking service. MMC can either represent the small entrepreneurial firm looking for the “smart money” investment with the appropriate growth partner or the large industry player looking to enhance their new product strategy with this creative approach. This model has successfully served the technology industry through periods of outstanding growth and market value creation. Many of the same dynamics are present today in the high tech industry and these same transaction strutctures can be similarly employed to create value.

Sumesh


If you are new into the world of business, then you might have heard of venture capital fundraising. But most people have little or no information about venture capitalists. There are a lot of misconceptions about the whole thing.

In simple words venture capital is the money that is invested by venture capitalists in new and upcoming companies that have the potential to grow into major giants. If you think that venture capitalists are wealthy financers who wish to finance any new venture, then you are misinformed.

Most venture capitalists are privately owned corporations with a huge pool of money that comes in from pension funds, endowment funds, corporations, foreign investors and wealthy individuals.

But most venture capitalists have high expectations when it comes to returns. You can always expect a venture capitalist looking for a 10 fold return or more within a period of 5 to 10 years.

Criteria

Most venture capitalists will only finance small start up ventures. But there are some who need companies with a proven and established base. Also the venture capitalist will have an equity ownership in the business. They take part actively in management and related decisions.

Some capitalists also help in the development of new services and products. As the risks are high, the expectations for returns are also equally high.

Financing

If you are looking for venture capital fundraising then there are many directories and associations that have memberships with several venture capitalists.

You can register with such associations to get links to individual Venture capital firms. Their guidelines and examples of the kind of companies that they have financed in the past are some of the details that you will get with such directories.

Some directories have links with as many as 1500 venture capitalists. With a nominal fee that may range from $1000 to $1500, you can submit your ideas and get exposure when it matters the most.