The Most overlooked Principle to getting Venture
capital
Venture capital is a possible source
of funding for new relatively unproven enterprises that appear to have
promising futures. However, such money is often hard to come by.
Be realistic in your quest for venture
capital. Venture capital firms expect a business to be able to return
their investment not only with interest, but with a large profit.
Many venture capital firms are affiliated with banks, insurance companies,
other financial institutions and large corporations.
Some are owned by individuals or private
groups of investors and a few are publicly held. Once you accept venture
capital, you have relinquished some of your autonomy and accepted the understanding
that the venture capital firm will take a large share of the profits you
earn.
As an entrepreneur, you should understand
the nature of a vendor firm, before pursuing this as a financing
source. This type of investor expects a projected return on investment
that is directly related to risk. The greater the risk, the greater the
return expected.
Typically however, an investment firm will
not be interested in getting involved with a new firm until the business
has established itself in some way, so the risk factor can be determined.
The venture capital firm and its
interest usually depends upon the stage of the new firm's development.
Once the new firm has established itself and has a working organizational
structure, a viable business plan and start up arrangement, a venture
capital firm may be interested.
However, some firms prefer a later stage
of new business development, perhaps when the new company is in its
second or third round growth state and needs more capital either to carry
out expansion plans or to tide it over until a merger or public offering
carries it to the next stage of corporate growth.
A company's business plan serves as the
primary analytical tool for the venture capitalist. In analyzing the plan,
a venture capital firm would most likely focus on three features.
The product or service. Investors seek
product or service innovations that give the company a strong competitive
advantage. A new idea, backed by market surveys (measuring the appeal of
the product or service and its potential market) may be tempting to such
investors. Management capability.
No matter how good the product or how innovative
the service, the quality and experience of the management is a key factor
in the success of the business.
The astute investor is well aware of this
and looks for solid evidence of such skill. The industry's growth. Investors
also want to be sure that the product or service is in a growth field.
A significant or revolutionary product improvement, by itself, may not
have appeal in a declining product or service category.
Most venture capitalists purchase common
or convertible stock rather than burden the fledgling enterprise
with interest payments on debt or debentures. They may possibly want more
than 50 percent ownership.
Additionally, while the venture capitalists
may insist on sitting on the Board of Directors or offering management
and technical advice, they are rarely interested in the day-to-day management
of the business, unless its survival and their investment is at stake.
Keep in mind that the minimum investment
is generally from $50,000-$500,000, but investment ceilings are almost
unlimited.
Author-Bio: Abe Cherian's online automation
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