In Boston.com, Mark G. Heesen has brought up a new concept when he was expressing his opinion about the evolving dynamics of the VC business. He said I see a bifurcation in the VC industry. Youre going to have your bigger funds investing internationally. But youre going to also start a lot of very specific funds being targeted to a region or a technology. Were starting to see this, and its only going to grow.

Bifurcation is irreversible.

As trend and technology are the only two tools that VCs can rely on, regional or technological focus for VCs is an acceptable strategy. They can focus, which will pave the way to better perceive the region or technology over time in order to grasp what is possible.

It is also totally understandable that capital owners will look for greater, smoother opportunities which requires less-perspiration to double, sometimes to quadruple their investments. And, apparently, international markets are greenfield opportunities.

The problem is, though, there is a high probability that international markets are not ready for such a huge shake-up. To make the story more scary, if not done correctly, global venture capitalism may lead to an infant mortality that will stop dumping of money to the international entrepreneurs when the need and opportunity is there in the future.

Timing is everything. John Cook, in his Venture Capital: Venture capitalists who miss and tell article discussing a meeting held by six Seattle area VCs. When they were talking about duds, Seattle VC Keith Grinstein, co-founder of Malibu Networks, said Malibu Networks had promising technology. But it entered the market about two years too early, a problem that led to missed sales targets, higher capital needs and other problems. Two years ago, we couldn’t find a customer, Grinstein said. Today, I read the paper and there must be 100 of them out there. It just kills me.

The fact of the matter is, global presence desire of VCs is no different. People are everywhere, ideas and willingness to take them to the next level under the roof of a business too. However, today, VCs should think twice before making promises to the international market as the equation does not only include ideas and entrepreneurs like their incumbent regions but also governments, bureaucracy, lacking intelligence, missing work ethics and many other risks.

However, there are decent tools in hand for assessing those risks. Global Entrepreneurship Monitor (GEM) delivered by GEM Consortium and Global Competitiveness Ranking and Global IT Report from World Economic Forum some of many that tell the gravity of any countrys investment readiness. Once it is satisfactory, other material to be used is Political, Economic, Social, and Technological (PEST) analysis before making any steps. PEST is a framework of macroenvironmental factors. The PEST factors combined with external microenvironmental factors can be classified as opportunities and threats in a Strength, Weakness, Opportunity and Threat (SWOT) analysis, both of which, will give VCs a rough groundwork about how investable the company is.

No matter how low-hanging fruit an opportunity is, being cautious needs to be the king. Systematic approach is a neccesity in global presence, not an option.

Until the global market is ready, the most workable idea sounds like covering overseas through partnerships. Partners need to be reputable vendors of the industry that VCs are planning to invest. A mutual benefit should exist. Also the partner vendor needs to have experience in the region. Forcing established vendors to a journey together for a hot startup, no doubt, will make VCs hand stronger.

The fact is, that is signaling a mission statement change for VCs. Joint effort with incumbent vendors is a new thing and some venturers may not enjoy this landscape of doing business. Though, the rules of global success are stiff and non-negotiable.

Author: Burak Fenercioglu
Article Source: EzineArticles.com
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Here’s what they told us:

Reach Significant Milestones Before Seeking Funding- especially Having Paying Customers — The more the early-stage company is able to accomplish on its own, the more attractive it is to venture capitalists, who now put a premium on the existence of real, live customers rather than vague notions
about the customers being ‘out there.’

“Get as far as possible without money. Find a way to show the dogs will eat the dog food.”

“Right now, you need to have it all: working, proprietary, protectable technology; successful, experienced and relevant management team; and proof of market demand in the form of paying customers.”

Be Prepared to Bootstrap the Company – During times when capital is less plentiful, entrepreneurs have to be prepared to go it alone until more investors jump back into funding
early-stage deals.

“Very, very, very few seed stage companies will obtain capital from venture funds, so it is best to bootstrap as much as possible. Save the time seeking investors and get to work to make something happen.”

“Be more creative. Think of ways to make progress without institutional investors.”

Work Harder and Do Your Homework — Finding capital for a start-up company has always been a difficult task, and many entrepreneurs have found it especially hard in 2007. But perseverance and taking the time to really understand what investors look for in a company are two ways of improving
the chances of obtaining funding.

“Network like crazy and know EVERTHING about your industry.”

“Don’t give up!. Keep looking. Research the VCs more thoroughly to find true early stage firms in your particular space. Work with local angel groups, the most likely source of seed money. “

Have the Strongest Management Team Possible Before Seeking Capital – Investors in each of our annual surveys have stressed the importance of the management team.

“Make sure at least one team member has done it (built a successful company) before.”

“Get the best team you can and plan on only one shot at a VC. And plan on a low valuation.”

Build the Company More Slowly with Less Capital – Capital is being ‘rationed” out in smaller increments, and quick exit strategies are no longer the norm.

“Do not base any aspect of the plan on an exit of less than 36-48 months.”

“Get farther along before you seek institutional capital, and ask for smaller amounts with a realistic time line. Don’t compress 7 years of development into 24 months. Build your company one block at a time, and ask for the capital in stages as you prove your case.”

Use All Available Capital More Carefully – Capital is now a more scarce commodity than it was in 1999 and early 2000.

“Make sure your business has a tangible economic benefit to customers in the near term, a strong ROI/Payback. Efficient use of capital is paramount now.”

“Build a cheap operation. And keep it cheap.”

So while it’s never been easy to get venture capital, not even during the good old gold rush days of the dot.com’s, the challenge is even greater now. But if you have a strong management team, a solid business model and you’re persistent, you just might win the battle.

Author: Dee Power
Article Source: EzineArticles.com
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When seeking a venture capital firm, there are six key variables to consider: location, sector preference, stage preference, partners, portfolio and assets.

Location: most venture capital firms only invest within 100 miles of their office(s). By investing close to home, the firms are able to more actively get involved with and add value to their portfolio companies.

Sector preference: many venture capital firms focus on specific sectors such as healthcare, information technology (IT), wireless technologies, etc. In most cases, even if you have a great company, if you fall outside of the VC’s sector preference, they’ll pass on the opportunity.

Stage preference: VCs tend to focus on different stages of ventures. For instance, some VCs prefer early stage ventures where the risk is great, but so are the potential returns. Conversely, some VCs focus on providing capital to firms to bridge capital gaps before they go public.

Partners: Venture capital firms are comprised of individual partners. These partners make investment decisions and typically take a seat on each portfolio company’s Board. Partners tend to invest in what they know, so finding a partner that has past work experience in your industry is very helpful. This relevant experience allows them to more fully understand your venture’s value proposition and gives them confidence that they can add value, thus encouraging them to invest.

Portfolio: Just as you should seek venture capital firms whose partners have experience in your industry, the ideal venture capital firm has portfolio companies in your field as well. Portfolio company management, since they are industry experts, often advises VCs as to whether the company in question is worthwhile. In addition, if your venture has potential synergies with a portfolio company, this significantly enhances the VCs interest in your firm.

Assets: Most companies seeking venture capital for the first time will require subsequent rounds of capital. As such, it is helpful if the VC has “deep pockets,” that is, enough cash to participate in follow-on rounds. This will save the company significant time and effort in maintaining an adequate cash balance.

Finding the right venture capital firm is absolutely critical to companies seeking venture capital. Success results in the capital required and significant assistance in growing your venture. Conversely, failing to find the right firm often results in raising no capital at all and being unable to grow the venture.

Author: Dave Lavinsky
Article Source: EzineArticles.com

However, it must be noted that the type of financing Startups receive determines the company’s strategic direction and probability of success.

Finance Models have numerous tangible strategic implications. When early stage Startups choose a Finance Model, they are confining themselves to a limited range of strategic options. When choosing a Finance Model, I think it is best to momentarily forget about money and focus sensibly on strategy.

To make the best possible decisions regarding your financing and de facto strategic direction, Startups have to place themselves in the best possible situation from day one.

Every Startup should end a series of successful prototyping with an analysis of which low-cost, high-impact business models, revenue models, pricing models, and sales strategies are suitable for their solution [problem-solving product or service] and its Users.

The next step is for Startups to assess the cost of implementing and executing particular business models. Startups may choose to self-finance these costs, receive funds from Angels, or use a pay-as-you-go strategy where you use a small base of sales to generate free cash flow which in turn funds additional sales efforts.

Finally, when moving into Alpha and Beta testing, it its critical to simultaneously test well-thought out business models, revenue models, pricing models, and sales strategies alongside your solution. If you decide to chase market share, forget about business models, and give your product away for the interim, then it is still a good idea to enable Users to purchase upgrades, subscriptions, or ancillaries. Otherwise, you may never know how many Users are committed or passive.

The Bootstrap Finance Model necessitates laser beam focus on product development, cost control, sales, and profits. Bootstrapping is akin to the concept of intelligent design. You are building a company from the bottom-up and are willing to allow a naturalistic growth cycle to occur. You’re interested in keeping your company very malleable, ready to shift directions in accord with market demands. You are opportunistic. Bootstrapping has lower initial risks, but higher long term risks since you may lose significant market share while other companies choose to Go Big. Bootstrappers risk being relegated to a sub par market position even though you probably have hip solutions, the coolest brands, and a cult-like User base.

The Angel Finance Model requires smooth investor relations, a high User growth rate, and a strategic direction that leads towards a highly probable merger or acquisition. Angel financing is similar to evolutionary theory. The Angel’s funds act as a propulsive agent to thrust a Startup upon an evolutionary cycle towards a probable Series A round or additional infusions of capital by Angels.

Despite opinions to the contrary, Angel investors are not charities, repositories of free money, or blind speculators panning for gold in quicksand. Angels need to make successful investments to sustain their investment activity. Angel financing has medium short term and medium long term risk.

The biggest dilemma in the Startup/Angel relationship is a misunderstanding of roles and responsibilities. Angels essentially invest in early stage conceptual renderings of solutions. Angels have to avoid getting involved in day to day management. Their only concern should be the completion of a workable solution [problem-solving product or service] that is ready to grow from prototype to Alpha tests/Beta tests. With Angels the clock is ticking slowly, but it is ticking. There is an expectation of multiple rounds of financing and merger or acquisition within 3-5 years. An Angel usually expects to earn a post-dilution return on investment of at least 200%.

The VC Finance Model can be simplified and best understood as a troika comprised of Seed Stage VC Funding, Early Stage VC Funding, and Late Stage VC Funding. Seed Stage VCs invest after evaluating an early prototype or hearing a particularly interesting pitch. Early Stage VCs invest with the sole intent of maximizing the value and market position of a Startup in anticipation of future rounds of financing. Late Stage VCs invest in Startups seeking additional funding while preparing for an eventual IPO or M&A. At each stage of a Startups’ evolution, VCs invest with the expectation that exponential growth and a successful M&A or IPO will substantiate the risks incurred.

The VC Financing Model compels a startup to grow at an ever accelerating pace. Such growth comes at considerable risk and entails the development of a costly labor, advertising, and technology infrastructure. Over the short term the risks involve technology and labor. The Startup must scale quickly to ensure quality user interactions, while priming their web sites and customer service systems to handle an exponential increase in Users. The Startup has to also deal with potential shortages in highly skilled programmers and project managers. Long term risks are market based. While managing such a fast pace of expansion, the Startup must stay grounded in the marketplace and respond proactively to shifts in the tastes and need of their Users.

Under this scenario, the focus is placed on expanding market share and brand identity. Typically, VCs expect to net a return on investment of at least 600%-1000%. Startups funded by VCs are always expected to become market leaders. A VC funded software company surviving multiple rounds of financing and heading towards a M&A or IPO can easily spend $50,000,000 or more over a two year period.

It is important to note that while there are innumerable examples of surviving and thriving Bootstrapped and Angel financed companies, successful Large-Scale VC investments are short in number in the Web 2.0 Era. Startups don’t require that much money to fund operations. And there is a more patient attitude on the part of Startup Founders who appear to be committed to running their companies for long periods of time before seeking VC funding.

Many Startups will become sustainable using all three Financing Models in the near future. A number of Startup Founders will decide early on to exclusively rely on one Financing Model throughout the embryonic period of their company. For example, it is possible that a Startup could reach a successful M&A or IPO exit by the sole means of Bootstrapping. To the contrary, numerous Startups will solely utilize several Angel investments or multiple rounds of VC funding to reach success.

Furthermore, others will undoubtedly find success by mixing and matching Financing Models. For example, a Startup may initially secure Angel investments then choose to Bootstrap or accept VC funding to facilitate further expansion and progress towards exit.

It is best to remain free of any preconceived notions or biases. When the time comes to make a Financing Model decision, just remember you’re making a compulsory strategic decision. Just make the best decision possible relative to the market conditions and fiscal circumstances that face your company at that time.

MORE ESSAYS ARE VIEWABLE AT: http://www.geraldjoseph.typepad.com

Author: Gerald Joseph
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1. Not doing your homework – VCs tend to invest in a specific space and stage; for instance, early stage biotech or growth stage retail. If you do not fit their investing criteria, they will turn you down flat.
2. Sending your business plan in cold – If you have a really great technology and you write extremely well, there is a chance that the plan could make it to a partner’s desk eventually; however, more likely it will sit in some pile on an associate’s desk until spring cleaning. Find an introduction to the firm.
3. Saying you have no competition – Everyone has competition, even if it is ‘doing nothing.’ You will have to convince your customers to spend their money on your products rather than on something else. What is it and how will you over come that resistance?
4. Require that the VC sign a non-disclosure – They just won’t do it. If there is some piece of your technology that you need to withhold for patent reasons, explain that in your presentation. You will have to discuss the product to sell it, so you should be able to discuss it to the extent that you can sell it to the VC.
5. Failing to pick a CEO – Many times a group of friends founds a company and just can’t decide who should be in charge. Instead of naming one as a CEO or hiring an outside CEO, they use the nebulous title of co-founder. You are running a company, not a democracy, pick a chief.
6. Failure to segment your market – Saying that you have a $10 billion market is attractive if it is true. But if that market for Linux is $10 billion and you have created a Linux add-on, your market is not the entire $10 billion.
7. Failure to understand cash flow – If you don’t understand how your cash flow will work, you will go out of business. VCs know this.
8. Not having a sales strategy – Many early stage companies have very interesting technology, but no real sales strategy. The VCs are investing because they want to make money, which means you will have to make money, which means you will have to sell something. Make sure you know how you will be doing so.
9. Don’t provide follow up information – If a venture capitalist asks you to send follow up information, don’t ignore the request. He or she is not asking for this information for health reasons.
10. Have a crappy plan – You can have a weak idea, but with the right plan and good execution, you can make a lot of money. Who would have thought that selling a $3 cup of coffee is a good idea? But if you have the greatest technology in the world and no decent strategy to develop it and sell it, you will have a hard time raising money from a VC.

Author: C. Worrall
Article Source: EzineArticles.com
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