A venture capital firm is actually a company made up of a number of businessmen and investors looking for upcoming and small entrepreneurs to invest their money on. Often referred to as private equity investors, this group of people are always on the lookout for brilliant business ideas and pitch-ins, which will give them a substantial amount of return in their investments at the soonest possible time.

When you approach a venture capital firm for whatever purpose you might have, you need to always prepare yourself before you meet them up. If you’re someone who would like to offer an investment, then you need to consider how much money you’re willing to invest and how soon would you like to get the profit out of it. Of course there will be risk involved as in a typical investment portfolio and to gauge this risk with a certain venture capital firm, you need to setup a meeting with their investors.

One of the truths in the business market is how the risk is directly proportional to one’s investment and return of investment as well. The larger the money you are willing to invest, the bigger the risk will be. The bigger the risk is, the larger the probable return on investment you can receive. The financial asset of these venture capital firms goes into the early stage capital of several small businesses and hence, your expected return will be largely dependent on how successful is the operation of that small business venture.

As one of the small business investors, you need to convince these business owners that you are interested in their business portfolio and you’re willing to give a huge amount of money as a startup investment in their business venture firm. Members of a venture capital firm have well-guarded trade secrets and if they find you trustworthy enough, they may very well treat you as one in the league.

As an entrepreneur, on the other hand, you need to sell them your business idea convincingly enough so as to invest money for your early stage capital. Oftentimes, a great business idea will be picked by reliable venture capital firms and they’d even fund a hundred percent of your startup funds right there and then. Of course they will be partaking some of your profits but given the financial circumstance, that’s the most sensible thing to do.

For a few thousand dollars, consider using your credit cards or obtaining a new credit card account to fund the business. Use that card only for your business and you’ll have a way to keep track of your expenses as well.

Another avenue for finding money for starting a business is to use your home equity loan, especially if you need, say $5,000 to $10,000. The interest rate on home equity loans are usually much lower than credit cards, but be careful. If you can’t pay the money back or make the additional monthly payments you could lose your home.

Look towards the heavens if you need an angel investor. Angel investors are private wealthy individuals who invest from $50,000 to $100,000. Most of the time the company they invest in is high tech and looking at a fast growth period. Angel investors will become involved in the day-to-day management of your company so keep that in mind.

Venture capital receives a lot of press and does invest billions of dollars, but, and it’s a huge but, only about 20% of the companies receiving venture capital are start ups. The average investment by a venture capital firm is in the millions, so it’s not appropriate for small businesses. Less than 1% of companies seeking venture capital successfully obtain it, that’s only about 4000 companies per year.

You might consider alternative sources of financing such as obtaining inventory through consignment, royalty financing, trade and barter or purchase order financing.

Many small businesses think that a grant from the government will be their saving grace. Unfortunately there are very few government grants available for businesses. Those that are awarded, are done on a competitive basis to established companies usually in the medical or technical fields.

However, grants or very low cost loans, are sometimes available through cities and states for the purposes of urban redevelopment, in blighted neighbor hoods or to increase employment.

Money for starting a business can be found in a number of places and should be one of the first tasks an entrepreneur should complete.

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

If you are doing basic or pre-product research, take the time to submit for grants. Although this is time consuming and certainly not the fastest way to raise money, the government and other grant funding agencies do not want ownership in your company. SBIRs provide a six month phase I grant for $100,000, followed by a significantly higher grant for Phase II, from $500,000 to $750,000. If you apply for and win two of these grants, you can get a good start towards funding your company.

If your company only needs a small infusion of cash, you can get a SBA loan, or if you have a good relationship with your bank, a line of credit. Also, a bank will lend against your receivables, if your customer base is reliable. Many people are afraid to tap into debt sources because they don’t want to be burdened with the debt if the enterprise fails. However, if you don’t believe in the company enough to place your own credit behind it, why should anyone else.

If you are looking for less than $1 million, tap into a local angel network. If you don’t know any rich people, find them. If you can’t raise $1 million in angel investment, your idea may not as good as you think… or you may not be the right person to sell it. Seek help through local business development agencies, SCORE groups, or technology incubators. These folks are all tied into the fund-raising network in the state.

Consider taking on contract work to fund your product development. If you have the right equipment or people to handle small contracts on a part time basis, use this revenue as a funding source. Use creative means to keep your costs low. Join an incubator to take advantage of the services they offer for a lower price. Bartering is another great way get the use of space or equipment that would be prohibitively expensive.

Part of being an entrepreneur is being creative. Use that creativity in financing your company and save the venture capital for the growth stages.

Author: C. Worrall
Article Source: EzineArticles.com
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What do venture capitalists do? Venture capitalists invest money in start-up companies to help fund the development of new products or services In return, they receive a stake in each company they help finance. If the start-up company succeeds, the venture capitalists who back it realize a profit. Very simply then, a venture capitalist has four basic job functions:

* Finding the deals-Seeking out good private start-up companies to invest capital
* Winning the deals-Convincing the entrepreneurs that the VC money will bring the most value-add to the start-up
* Working the deal-Collaborating with the entrepreneurs to make the company a big success.
* Raising the Capital – Raising the capital to invest in these companies

Unlike angel investors, who put in from $250,000 to $500,000 into companies to help get their business plans and market research done, venture capitalists typically invest from $5 million to $50 million. “So they have their skin in the game in terms of ownership,” explains Atul Kapadia, a managing director at Infinity Capital, a venture capital firm based in Palo Alto, California. Therefore, a venture capitalist’s role goes much deeper than making mere equity investments. “Venture capitalists are active advisors to their portfolio companies on issues ranging from operations to strategy. They support entrepreneurs and management teams during the growth phase of a company through their own efforts and extension of their network,” explains Anju Ahuja of the Chicago-based First Analysis Venture Capital firm. Whether it is finding and hiring the right talent at short notice, identifying the best bankers for an equipment lease line, or getting an introduction to the first key customer, venture capitalists have the ability to open the first few doors for their portfolio companies.

The Successful Venture Capitalist

Relatively few recruits to a venture capital career come directly from the university. Sure, a BE, MBA, or CPA will provide a useful foundation for venture work. “But if you understand emerging technologies and market fundamentals, if you are really motivated to help other people succeed and if you have an intellectual curiosity about new ideas, you are well suited for a career in venture capital,” says Mhatre. Historically, venture capitalists came from operating or finance backgrounds. More recently, individuals with technical backgrounds plus strategy and corporate development experience have become active venture capitalists. Each of these backgrounds provides a unique and beneficial perspective although “it is becoming more difficult for individuals with pure finance backgrounds alone to differentiate themselves and provide the depth in strategic guidance and operating support that entrepreneurs seeks,” says Ahuja. This is especially true for early-stage venture capitalists because start-ups are looking for business and strategy advice. “People with financial engineering and investment banking are a good fit for later stage companies,” she adds.

Certain sectors of the market, such as fabrication or telecommunication, that absolutely require technical knowledge. In these cases, an engineering degree or technical experience is invaluable. “Domain knowledge is everything in these markets. I’ve spent the last two years of my life understanding the data communications market,” says Kapadia. For markets like e-commerce, a non-technical background is okay so long as the venture capitalist is deeply connected within the industry. “But you must also understand that a venture capitalist will never know as much as the entrepreneur he is backing so business experience is very important. An MBA from a top notch university or solid on-the-job training would be a big plus for a venture capitalist,” adds Dev Purkayastha, a 19-year veteran venture capitalist from southern California, who is about to form his latest fund. “Some companies are attractive for their technology, but most companies live and die by sales and marketing strategies. Without a solid market approach and unique points of differentiation, the best technologies will never reach their full potential,” Ahuja says. “While a technical background is quite helpful, the ability to refine business models and work through corporate development issues is necessary,” she adds. But, says Mhatre, whether your background is technical or non-technical, “someone with experience with startup companies, marketing and operating experience, and an MBA degree would be a good candidate for a venture capital job.”

In this business, personality is just as important as professional background. “Above everything, the best suited traits for a VC are good interpersonal skills and a good network. You should be able to co-exist and lead your entrepreneur while adding positive energy within your partnership,” Kapadia emphasizes. “You have to be passionate about what you do,” agrees Purkayastha. “At the same time, you have to have a little bit of detachment to maintain a level of objectivity in monitoring your investments,” he adds.

“Ideally, venture capitalists should be extremely open minded,” says Ahuja. They must balance playing a visionary role along with identifying processes and methodologies that help young companies grow. “This is a people business. Venture capitalists don’t invest in business plans or concepts, they invest in teams with visions and skills to make those visions a reality,” she explains. As a result, venture capitalists must be able to work with diverse personality types.

Before jumping in, however, would-be VCs should be realistic about their expectations from this job. “People sometimes have a glamorized vision of this industry,” says Mhatre. Spend some time with a venture capitalist and see what the day-to-day rigors are like. “There are some terrific highs in this profession but you also work very hard without immediate feedback,” he adds. Like physicians, the notion of being “on-call” is a very real one…except venture capitalists are always on-call and always need to be responsive to their entrepreneurs. “Successful venture capitalists tend to be able to multi-task and are generally intellectually curious. They also tend to be high energy, whether this is veiled by a more casual demeanor or not,” Ahuja concludes.

Getting Started

Pick up any major metropolitan newspaper-you’ll be lucky if you see a job listing for a venture capitalist. “This is a mentorship-driven business,” explains Mhatre. The way to get an entry is as untraditional as the profession itself. Some venture capital firms like to hire technical people as consultants and advisors and that is one way to learn the business. Other venture capital firms have something called an Entrepreneur Residence program. They invite directors, VPs or CEOs of different companies to join their company under this program and use the firm’s resources to research and evaluate the market, build networks and leverage opportunities. If this proves to be a successful partnership, they often land the job of a venture capitalist. A third way to try to enter the industry is by getting an MBA from Stanford or Harvard University, since most of the venture capitalists are alumni of these two schools. “Work at a start-up, get noticed and jump into venture capitalism,” Mhatre says.

Getting Ahead

To get ahead in this game, “network, network, network,” Mhatre states emphatically. Focus on a specific domain and become an expert in it. “At least one area has to be a leading indicator for you,” says Mhatre. But whatever your path, once you gain an entry, you should learn by working closely with people who have had experience. Unlike other traditional careers like engineering or high-tech marketing, this profession has a less crisply defined career ladder. Over time, a venture capitalist will progress in terms of level of credibility and responsibility. He or she may join the firm as an associate, and over time, advance to become a general partner, a managing director, a VP, president or CEO.

The money in this business is good. “Money is never the problem; its about how much value you add and what companies do you build,” says Kapadia. If you are good at what you do, there is no discrepancy in how much a person with a technical versus non-technical background can make in this profession. “Mike Meritz, a journalist by profession is just as successful in venture capital as Vinod Khosla, an engineer,” says Mhatre.

Typically a venture capitalist gets 2 percent of the total fund to manage it. An associate with 2 to 3 years’ market experience before or after an MBA may easily make from $100 to $200 thousand, a general partner may net from $200 to $300 thousand and the top honchos may rake in upwards of $500 thousand annually,” states Purkayastha, cautioning that is just a general, ball park estimate of compensation. Ahuja, Purkayastha and Mhatre suggest looking up the December 1998 issue of the Venture Capital Journal for compensation statistics. “You don’t succeed in this business for the love of money,” says Mhatre. Ninety to ninety-five percent of compensation is tied to the performance of the investments your venture group makes.

The Hot Spots

In the US, the Silicon Valley still remains the best market for venture capitalists. New York, Boston, Seattle, Atlanta and the mid-west have also started reaching a critical mass. “The markets are more conservative in the east coast and things don’t move with the same velocity as in Silicon Valley,” says Mhatre-but stresses that these areas have good markets as well. According to the PriceWaterhouseCoopers Money Tree Survey for Q2 1999, Silicon Valley led all regions in total venture investments, with 35 percent of all Q2 dollars going to bay area companies. The highest growth rates by region between Q2 of 1998 and 1999 were in New York Metro with 322 percent growth, New England at 177 percent, and Los Angeles/Orange County with 167 percent growth. Only the Southeast trailed Silicon Valley’s 115 percent growth with a 47 percent increase.

“These different geographic markets tend to have different industry focuses. As a result, the venture firms in these markets tend to have a perspective that is unique to that region,” says Ahuja.

Like venture capital itself, venture capitalists will be in demand for a long time to come. “Many people debate the nature of market activity with the dramatic number of start-ups, consolidations, mergers and acquisitions. But few will truly dispute the amount of market activity to come,” says Ahuja. “We’re so blessed with creativity in this country, that as long as entrepreneurialism is alive and well, the demand for venture capital is going to be insatiable,” states Purkayastha confidently. So if you’re smart, well qualified, driven, resourceful, people oriented, have nerves of steel and a heart of gold, and can be passionate about success, this might just be the career for you. Care to capitalize on this venture?

Author: Bijoya Ganguly
Article Source: EzineArticles.com
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A venture capital firm is a collection of investors looking to throw their money into the next great idea that will grant them generous returns. With their money, your restaurant, retail store, or latest invention transforms from a day dream into a reality. Several options of repayment, ownership, and terms are discussed between you and your angel investors on how you will reward them for believing in your idea. First, you have to win their confidence.

The most important part of your business is your business plan. Before you approach a venture capital firm, do your homework. Transfer it from your brain to paper. Your goal is to create a business plan that will motivate investors to write your company name on that blank check. Also, in writing your business plan, you will discover how much you know or dont know about the adventure in which you will embark. Or you may find the concept is not as fabulous as you imagined.

Start with research. Intense study uncovers little known nuances about your new chosen industry and fills holes in your concept. Identify your competitors. Dissect their company products, services and policies. What dont they offer that you can implement into your business concept? Find a niche in the market that will set you apart from others who may be seeking the same clients, customers and investors you want to attract.

Next, examine the industry trends. Analyze the data. Find out when sales and profits are at their lowest. Are you merging into the gift basket business that suffers during the summer, after mothers day? Brainstorm ideas you can include in your plan to overcome those industry wide obstacles.

Use your data to make logical predictions of future industry trends. Can you predict a disaster like the dotcom failure at the end of the twentieth century? Your potential investor friends will want to be shown the money. Show it to them in standard financial and cash flow statements.

Now, come back to the beginning and write a two-page summary of the company. This will serve as the introduction to your business plan. Some experts call it the Executive Summary. I call it the sales pitch.

Your summary will be the first section investors read about your business. If it doesnt sell them, then it becomes the last thing they read about your business.

Take your time, do your research and make sure your business plan sells, sells, sells!

Author: Yasheve Miller
Article Source: EzineArticles.com
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It should be noted that venture capitalists are not suitable for everyone and they are typically very selective in deciding what they want to invest in. Venture capitalists are most interested in ventures with high growth potential.

A venture capitalist can be used as a financial tool for development within your business. They provide long term committed share capital and the return that a venture capitalist will receive is dependent on the growth and profitability of the business.

The first example of a venture capitalist dates back as late as the 18th century and a venture capitalist will look to retain their investment for around three to seven years. Venture Capitalists are used globally and Europe has a large and growing number of active venture capital firms. Figures from 2003 showed that about three million people in the UK are employed by companies that are backed by venture capital and over half of all the business within the UK that are backed by venture capital are high tech firms.

If a company has the qualities that a venture capitalist seeks such as a structured and detailed business plan, a good management team and a good potential to exit the investment before the end of their funding cycle, as well as the target minimum returns in excess of 40% per year; they will find it easier to raise venture capital.

Venture capital also acts as a source of job creation and improves the corporate governance and accounting standards of a companies. So how does a business go about attracting the help and investment of a venture capital firm? Well it should be noted that venture capitals typically invest in businesses that have:

A minimum investment need of around 2 million, though many smaller regional VC organisations may invest from 50,000

An ambitious but realistic business plan

A product or service that provides a unique selling point or other competitive advantage

Large earning potential and offering a high return on investment within a specific time frame, e.g. five years

Sound management expertise – although venture capitalists tend not to get involved in the day-to-day running of the business, they often help with a business’ strategy

A proven track record – for this reason start-ups are generally not considered by venture capitalists for investment

As well as all of the initial help that a venture capitalist can provide to your business such as risk capital, management expertises and experience they also make it easier to gain funding in the future for your business.

Before you start looking for the financial help of a venture capitalist you need to ensure that your business plan is thoroughly arranged and that everything about your business is detailed and made clear to potential investors.

Author: Helen Cox
Article Source: EzineArticles.com
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Most of the cases I’ve seen the firm retains 40% ownership if you pay them what they demand every month. If you fall short a couple of payments they take 60% control of the company and you get 40%.
There will also be certain covenants when you have the majority ownership. You will only be allowed to spend a certain amount of money wihout approval from the firm.

Sound fairly straight forward right? You pitch the idea along with the amount of money you’ll need and you’re expected earnings over a five year period. You show them how you’ll increase sales, cut costs, and manage the company better than anyone else could ever dream. They in turn give you a pile of money and free advice. What a deal!.

Here’s what really happens.

You approach the venture capital firm and meet with the board. You show them how you’ve invented a process of combining milk and apples into a potion that will cure cancer, and serve as an alternate to gasoline for 3 cents per gallon.

One of the board members is very enthusiastic. She thinks you’re on to something that with a little management and marketing guidance from the firm could be really big. The other six grumble about the risk of alar and other problems associated with apples.

After a few weeks they grudgingly decide to meet with you again. The guy that was excited about your idea sits quietly and the other members have softened a little to your idea but still have serious concerns, blah blah blah. After the meeting is over your ally will come over and talk to you alone. She’ll tell you she was really pulling for you and you may have to give up a little more control or equity, but she’s in your corner and thinks she can get it done for you.

If your idea really is good, you’ll get the money. If they detect you’re not 100% confident and that you don’t posess business savvy they’ll try to control as much of your business as they can in most cases. In other cases they’ll give you tons of freedom, but watch over your shoulder and count every penny.

When you fail to make a couple of the payments (and they will be considerably higher than bank payments) they’ll take control of the company. Then they’ll run it with such a heavy hand you’ll be forced to either sell to them, or get bank financing and buy your company back at a healthy profit to the venture capital firm.

So is it really that bad? It can be. You have to research the VC firm or angel investor much more diligently than you would a bank or other lending institution. You must stick to your gains and get the best deal you can. This means you’re going to have to be patient, and you certainly will want to talk to at least to other VC firms. In short, you have to play their game.

So what should you look for in a venture capital firm?
I’d recommend one that’s been around for more than fifteen years. Some of the VC lenders have became jaded since the dotcom bust, and honestly it’s hard to blame them.

On the board there should be at least one or two entrepreneurs who made their money the old fashioned way. Hard work and perseverance. If it’s full of former dotcommers you’ll probably want to steer clear. The biggest reason for this is they may have no management or real business experience. The fact that they had a great idea and were able to capitalize on it before the bust doesn’t make for the next Jack Welch. It would also be a plus if they had a senior level manager in a big company. These guys know how to work a bureaucracy and what the traps are.

If you’ve done your homework and really believe in yourself and your idea, let the confidece shine through. That doesn’t mean be arrogant. It just means, hold your ground until you get the best deal possible.

Author: Eric Gurr
Article Source: EzineArticles.com
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