Venture Capital Magazine

gay-pianist


Venture capital ***?nd you ***?ll them shares can you agree to buy them back? DOES THIS EVER HAPPEN? If so give examples.

Asa K


I’m graduating high school this year, and plan to become an attorney, but I’m also very interested in investment and hope to dabble in investments/venture capital, etc.

Would a BA in business from a liberal arts college suit me better, or a BSBA degree in finance from a large university?

Len McDowall


In this continuing series of articles on how to write a Business Plan or Information Memorandum to raise capital, Part 2 discusses business plan content specifically ‘corporate objectives’.

Corporate Objectives

When writing your business plan it’s important to state what aims and objectives the entrepreneurs are striving to achieve, both personally and for the company. In addition, these goals must be appropriate to the company’s industry sector and must blend with the objectives of potential investors who are approached, since venture capital investment can be considered as a partnership it is vital that each party has the same broad objectives.

This section on ‘corporate objectives’ will aid the investor in his or her appraisal process and avoids entrepreneurs wasting valuable time and energy trying to sell what may be a perfectly good business opportunity to financiers who admire the idea but are not likely backers.

Entrepreneurs will have to address four basic issues:-

• What do the founders want for themselves: money, power, success, excitement, status?

• What do the founders want for their company – to go public to sell out, to build an empire?

• How do the founders and corporate objectives fit with the experience of other companies in the industry sector? Investors will question business plans which deviate significantly from industry norms.

• What are the venture capitalists objectives and how do these compare with the above?

If these objectives are not coherent investors will resist.

The content of Business Plans will be covered further in subsequent articles by Len McDowall.

© Len McDowall, Integral Capital Group 19th October, 2007

www.integralcapital.com.au

Alex Denver


As an entrepreneur interested in start-up investment and at the same time being an individual concerned with the risk involved in that investment, you should better know the industry in and out. Venture capital is provided by Private banks, Investment banks etc. Venture capital is also fund provided by entrepreneurs/professionals who are interested to invest in expanding businesses for the sake of high rate of interest. There are many governing factors, which are taken into consideration before starting a new business, some of them are:

· Working premises

· Machinery

· Funds

· Other assets and liabilities

Well-managed venture capital firms are generally private partnerships funded by private firms, wealthy entrepreneurs and the venture capitalists themselves. Lets get familiar to some of the terms that are used to define the funding of start-up businesses:

Venture Capital: This is a kind of equity investment generally suited for start-up companies or growing businesses.

Venture Capitalists: The term venture capital means financing an early stage business, which involves higher risk investments with a potential for above-average returns. The person making such investments is known as venture capitalists.

Angel Investor: A person providing venture capital to start-up businesses is often referred to as an angel investor. Angel investors are entrepreneurs who look for higher rate of return in comparison to traditional investments.

When it comes to obtaining money and funds, there are many banks, which are willing to pay a certain sum of money from the available packages. Then there are venture capitalists and angel investors who invest for the sake of large profits.

Len McDowall


This is a continuing series of articles on how to write a Business Plan or Information Memorandum to raise capital, Part 12 discusses the business plan content specifically ‘Longer Term Objectives’.

Longer Term Objectives

It is useful to state the aims and aspirations of the company and its management beyond the period covered in the business plan. This section gives an insight into the type of business that is anticipated and is important for attracting compatible investors who have similar return criteria.

This is the final article in the Series of 12 on ‘How to write an Information Memorandum or Business Plan to raise capital’ by Len McDowall. If you would like more information or free articles on raising venture capital and investing see our website www.integralcapital.com.au

© Len McDowall, Integral Capital Group 24th October, 2007

www.integralcapital.com.au

Boris Tomson


How to find Capital Related articles :

Capital budgeting is very important in small business venture capital. It is the process of making investment in capital expenditure. Capital expenditure refers to expenditure and the benefits that are expected over a period of time, especially exceeding one year. The chief characteristic of capital expenditure is that expenses are incurred aggressively at one point in time. The benefits are realized at different points in time in the future. Capital expenditure decisions are also called long-term investment decisions.http://finance-info.synthasite.com

Capital budgeting is very important in small business venture capital. It is the process of making investment in capital expenditure. Capital expenditure refers to expenditure and the benefits that are expected over a period of time, especially exceeding one year. The chief characteristic of capital expenditure is that expenses are incurred aggressively at one point in time. The benefits are realized at different points in time in the future. Capital expenditure decisions are also called long-term investment decisions.

The decisions concerning capital budgeting are crucial because they are long-term oriented and are irreversible in nature. The efficient running of a firm is reflected by the way decisions are made for the effective utilization of the firm’s financial resources. Such capital budgeting decisions are considered to be of paramount importance in heavy investment, long-term commitment of funds and impact on profitability.http://finance-info.synthasite.com

The capital budgeting decisions generally involve very large amounts of capital funds. However, the availability of such funds is very limited. It is essential that thoughtful and wise decisions be made concerning investment of capital funds. This would, result in flow of profits for the firm. Capital budgeting involves employment of capital funds in the activities of the firm on a long-term basis. This increases the financial risk involved in such investment decisions, and necessitates careful and efficient planning. This is because, any wrong and unwise decision may prove disastrous for the small business venture capital firm.

http://finance-info.synthasite.com

Amy Grace Remollata


Borrowing from banks is every small entrepreneur’s nightmare. One gets turned down for bank loans for a variety of reasons, including lack of assets, collateral and business experience. Don’t despair, however. There are several common types of alternative sources of capital for setting up a business available to young companies.

Savings and Investments

The first source you should consider is your own savings and investments. One disadvantage though of self-financing is that if things did not turn out the way you want them to be it will be your money that goes down with the ship.

Angel Investors

Angel investors are affluent individuals who provide capital for a business start-up, usually in exchange for ownership equity. These individuals are looking for a higher rate of return than would be given by more traditional investments (typically 25% or more).

Angel investors are an excellent source of early stage financing and high-growth start-ups. They are often willing to tread where there is too much risk for banks and not enough profit potential for venture capitalists. And since angel investors are often retired business owners and executives, they can also provide valuable management advice and important contacts.

Peer to Peer Lending

Peer-to-peer lending is a means by which borrowers and lenders may transact business without the traditional intermediaries, such as banks. It can also be known as social Lending, ordinary people lending money. The process may include other intermediaries who package and resell the loans–examples are Prosper.com and Zopa-but the loans are ultimately sold to individuals or pools of individuals. Prosper.com, which is available in the US only, offers business loans for small companies.

An enabling technology for peer-to-peer lending has been the internet, which connects borrowers with lenders, for example through an auction-like process in which the lender willing to provide the lowest interest rate “wins” the borrower’s loan. (wikipedia.com)

Money pool

Instead of a bank loan, borrow smaller sums from several family members, friends, or colleagues. The lenders have no legal ownership in the business, but can act as advisors and cheerleaders for your venture. Remember though that nothing causes tension in a family like lending money that is never paid back.

Credit Cards

Many business owners use their credit cards to fund their businesses. Credit cards offer the ability to make purchases or obtain cash advances and pay them at a later time. But as a long-term financing method, they can be expensive. Most credit cards will charge you 2% to 4% of the face value of a cash advance as a “fee” making this method of financing very risky.

Bootstrapping

Another source of capital for setting up a business is bootstrapping. It is a way to finance a business by saving rather than borrowing money. It’s being as frugal as possible so your business can be started on as little cash as possible.

The use of private credit cards is the most known form of bootstrapping, but a wide variety of methods are available for entrepreneurs. Other forms of bootstrapping include owner financing, minimization of accounts receivable, joint utilization, delaying payment, minimizing inventory and subsidy finance.

While bootstrapping involves a risk for the founders, the absence of any other stakeholder gives the founders more freedom to develop the company. Many successful companies including Dell Computers were founded this way.

Venture Capital

Venture capital is not suitable for all entrepreneurs. It is an option for small companies that have a seasoned management team and very aggressive growth plans; however, venture capitalists will rarely invest in small businesses that have no intention of going public. If a company does have the qualities venture capitalists seek such as a solid business plan, a good management team, investment and passion from the founders, a good potential to exit the investment before the end of their funding cycle, and target minimum returns in excess of 40% per year, it will find it easier to raise venture capital.

The venture capitalist objective is to invest in a company for a short period of time – say 5 years – and then cash out of the business while making a significant return on their investment.

Len McDowall


In this continuing series of articles on how to write a Business Plan or Information Memorandum to raise capital, Part 6 discusses business plan content specifically ‘Research and Development’.

Research and Development

If the product or service of the business requires any design or development before it is marketable the extent of this work needs to be disclosed in your business plan. Similarly, if future prospects depend on the successful development and introduction of new products it is important to state the nature and extent of such work and the time scales involved. Although existing products will be of considerable interest, venture capital investors will be equally if not more concerned with product succession, given the likely length of their involvement with the company and hence will expect to have the R&D strategy outlined in the plan.

The points for consideration to include in your business plan:-

• Current status of the development program.

• The in-house expertise the company has in the area and whether any development work is to be sub-contracted.

• The person responsible for overseeing development and his experience/expertise in this field.

• Identify any major anticipated problem areas and the approaches to their solution. State what effects these may have on the development timetable.

• Outline future development work on new products.

• Present a design and development budget both on a cost and time basis. Allow some contingency as costs are often underestimated.

• Clearly state the accounting policy with respect to R&D and if costs are capitalized present the case for this.

The content of Business Plans will be covered further in subsequent articles by Len McDowall.

© Len McDowall, Integral Capital Group 23rd October, 2007

www.integralcapital.com.au

peter d


I would rather not just own shares in a company or mutual fund because these options don’t appear to actually promote environmentally friendly companies. Is there some way to invest in venture capital firms that in turn invest in environmentally friendly companies?

Len McDowall


This is a continuing series of articles on how to write a Business Plan or Information Memorandum to raise capital, Part 8 discusses the business plan content specifically ‘Management’.

Management

The product or service offered by a company may be excellent but it is people that make businesses successful. Venture capitalists back committed, experienced and well-balanced management teams with, hopefully, a good product or service. Not vice versa!

The emphasis is very much on management teams, not particular individuals. Investors shy away from ‘one man bands’ owing to limitations on the amount any one person can accomplish. They seek a well-balanced management team for two reasons:-

(i) The business will probably survive the loss of a key person and…

(ii) A complement of skills ensures that the important managerial functions -production, sales, and finance, among others – will be attended to.

Accordingly, this section of the business plan provides the key to the potential investor and will figure large in his investment decision.

From the investor perspective management teams can be categorized from the most to least preferable as follows:-

1. All members of the team identified and fully committed to the venture. This is the ideal situation as the team is on board and working together, especially when team members have experience and a successful track record. This is one of the prime reasons that investors are keen to back management buy-outs from parent groups.

2. All the team members are identified but not everyone is on board. This is a typical situation where the existing management recognizes the need for additional and complementary management skills but cannot bring that person on board until funding is in place. The possibility that they may not join is a source of concern for investors.

3. One or more of the team have yet to identified, i.e. gaps in the management team. In these circumstances it is important to recognize the need and indicate how the gap will be plugged. This may include part time staff or outside advisers until a suitable full time person is recruited. The recruitment aspect makes the team less desirable and investment more risky.

4. The ‘one man band’. This is usually an unacceptable situation for investors unless the person has an outstanding track record in developing successful businesses. It may then be possible to build a team around this person.

The best position is to assemble your team before seeking venture capital or at least identify its members. This will significantly reduce the perceived risks and increase the likelihood of successfully finding finance.

The other aspect regarding management which will be of paramount importance to investors is their commitment to the venture – not just in terms of “blood, sweat and tears” but also financial. Investors will expect management to invest personally in the opportunity as an explicit show of faith and commitment. If there is no such personal investment, venture capitalists, who are usually asked to put up most of the cash will be reluctant to do so. If the management is not willing to back the venture themselves why should an investor? The amount of that personal investment differs from case to case, but the sum should be significant in terms of personal wealth.

The main points for inclusion in this section of the business plan are to:-

• Provide a brief synopsis of each manager reviewing career highlights, duties and responsibilities and past accomplishments which demonstrate ability for the tasks required.

• Explain how the management team is to be organized and describe each member’s primary role. If the company is established and has an effective management structure an organization chart shown as an appendix should be included.

• Discuss the board of directors, outlining any non-executive members and their function.

• Provide details of salary packages and any personal investment in the company. Include a list of shareholders in the appendices.

• Identify any weaknesses in the team and how they will be overcome i.e. training, recruitment, outside advisers.

• Explain the strategy to retrain and motivate staff, ie. key executive share options, bonuses, profit sharing etc.

• Describe support provided by professional advisers both current and ongoing.

The content of Business Plans will be further covered in subsequent articles by Len McDowall.

© Len McDowall, Integral Capital Group 23rd October, 2007

www.integralcapital.com.au