Low Jeremy asked:


Venture capitalism is a system wherein a person or a company often referred to as venture capitalists invest money in a company or business exchange for a stake in the business or a share in the earnings, present and future, of the company.

Venture capitalists are frequently the ones that provide funding for companies that are in need of seed money to start up their business. Often, they support businesses that have a high potential for growth and those that they feel will return their investments multiple-folds. Companies that have innovative ideas and products are primary targets of venture capitalists. They are also partial to industries that are into innovations like Information Technology, Biotechnology and the medical fields.

Other venture capitalists focus on providing capitals for already established companies who are seeking to expand their operations while some rescue companies that are in trouble and those that badly need restructuring. There are also venture capitalists that go into buyouts and company takeovers but of course, these are just a few.

Often, venture capitalists do not just provide money but also the know-how. They help fledgling companies start by offering their managerial, executive and marketing expertise. They can also provide the contacts in the industry as well as other business requirements.

Venture capitalism starts with the business plan submissions, which the company seeking seed money can pass or the venture capitalist company can submit. The business plan should more or less include a description of the size of the target market, the people that will work behind the team, the technology and the product that the company will be offering, and the financial projections.

It is also important to include a summary of the business concept at the beginning. Remember that these venture capitalists do not have the time to read through the rest of the proposal. Your summary will determine if they will be interested or not in your business.

After submitting your business plan, wait for three weeks and then follow up with the venture capitalist. If you are lucky to make the cut, you will be scheduled a face to face meeting with the venture capitalist, where you can present your case in the flesh. This might help them make their decision.

On the average, venture capitalists receive about 200 business plans in a month. Only about five percent will be invited for a face to face meeting; so make the most out of your meeting and present a case that they can’t possibly ignore!

There are two types of people in the world. These are the rich who have money and those that don’t. When the person has money, there will be no problems going on a shopping spree in New York or hop on board a plane to see paradise in the Bahamas. The average Joe can also do that but will have to same that amount over a few months or even years.

If the rich individual doesn’t do anything to preserve the wealth, this will soon disappear. This is the reason that being a venture capital investor seems to be a good idea. A venture capital investor is an individual who would like to help fund an entrepreneur. There are two kinds namely the person who will wait to receive such a proposal while the other is out there hoping to see something interesting.

In the end, the venture capital investor will be reviewing the business plan to make sure it is sound and also meet the entrepreneur in person to clarify some issues. There are some people who might take advantage of the individual so a background check will be done even before the meeting takes place. The venture capital investor who is well aware of the trends for example in the information technology will not want to do business in a field that is unknown to that individual.

This means the person will only gamble on a high-risk investment in the preferred comfort zone. This approach is advantageous to the entrepreneur because the years of experience in that field can be useful in the partnership. What does a capital venture investor get from all of this? In exchange for the money being shelled by the individual, there are also a certain number of shares that will be given to get a seat among the board of directors.

This will ensure that the investor can play an active role in the direction of the business to be able to safeguard the money that was invested into the project. As the company grows, the money invested by the investor will be returned and the profits will be shared increasing the current wealth of the person.

Being a venture capitalist is a win-win situation for the individual and the entrepreneur. After all, two heads are better than one in making the day-to-day decisions so the company will become profitable in the long run.



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Erilson Araujo asked:


I am charged with getting venture capital for our media technology company that focuses on next-generation home entertainment. This financial crisis has got me thinking about where to look. I was thinking maybe China. Any ideas? —E.S., Irvine, Calif.

First, the good news: “China does have a VC community, and…[it's a] source of liquidity and appetite for new investment, notwithstanding the current global financial collapse,” says Janet Carmosky, CEO of the China Business Network, a business information and networking Web site.

Bradley Haneberg, a securities lawyer for Kaufman & Canoles who has worked on direct Chinese initial public offerings, agrees. “In the last several years, China has seen the birth and exponential growth of its entrepreneurial class. The Chinese government adopted several policies (including tax incentives) to encourage the development of privately owned businesses. These entrepreneurial ventures, coupled with the privatization of state-owned businesses, have driven the Chinese economy to new heights,” he says.

Despite a blistering economy and an enormous spike in the number of businesses that require access to capital, bank debt is difficult to obtain in China because loans have traditionally been given only to companies that are politically connected. The lack of bank financing has contributed to the creation of Chinese venture capital groups, Haneberg says. Chinese investors have funded telecoms, Internet ventures, health-care firms, software development, green tech, water projects, airport securities, and social networking sites, says Robert Chen, executive vice-president and general manager of the ChinaTel Group, which provides WiMAX networks in China and other countries. “Next-generation home entertainment could be big here,” he says.

Focus on Chinese Companies

Despite the good news, however, there is a deal-breaker for U.S.-based startups seeking to tap into Chinese VC money: Chinese investors focus on funding Chinese companies.

“There are many reasons for [investing inside China]: Among the top: lower labor cost, big China market, and most importantly, the VC can keep an eye on the project,” Chen wrote in an e-mail message. In addition, Chinese VCs rely heavily on what’s known as guanxi (BusinessWeek.com, 11/8/07), Chen says. “When a person has good guanxi with the Chinese government or with a VC, that means they have a good relationship and might refer the company or individual to get a license approved or refer the person to someone in the VC community that will review the company’s business plan and may or may not invest in the company.”

Carmosky confirms the importance of the personal relationship in Chinese business, in contrast to U.S. venture capital culture, which tends to focus less on relationship and proximity and more on forecast ROI and exit strategies. “Our system of capitalism is so impersonal that it’s often called ‘OPM’ or ‘Other People’s Money,’” Carmosky notes. “It calls for high degrees of transparency and accountability, and exists within a framework of mature, scalable markets.” In contrast, risk is evaluated by Chinese VCs based on proximity, local relationships, and calibrating how well-attuned a company is to government policy.

There are also stringent foreign exchange rules in China that make it difficult for firms there to engage in foreign exchange, Haneberg says, and Chinese venture capital firms have a hard time competing for quality investment opportunities in developed countries where there are already so many established investment firms.



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Bill Pratt asked:


Venture capital funding or financing is a good option for those corporations that have a unique corporate proposition, which could earn high ROIs or returns on investments that would be at least 30 percent annually. These corporations generally need huge outlays of capital.

The venture capitalists typically get an ownership stake, so that they would be able to share with the business risks and profits of the corporation. Hence, it could ultimately become one of the corporation’s institutional shareholders. In exchange, the corporation would be able to benefit from the operational and financial support, which would be provided by the management team of the venture capitalist.

One crucial consideration for the corporation would be to get sufficient capital to be able to quickly achieve market share. The additional funding that has been raised through venture capitalists could provide the company with a sufficient working capital to have the capacity to market, brand then sell the products of the company.

By having a venture capitalist or an institutional shareholder in your corporation, you would be able to give your customer confidence.

Also, by getting a venture capitalist on board would mean that corporate governance is a part of the policy of the company from its start. However, a negative aspect of venture capital funding would be that a company might feel that they lack control panel as venture capitalists could have stringent covenants such as not allowing the company to be able to change the direction of the business without asking for approval.

A company or corporation must view venture capitalists as individuals who are committed to invest on the growth of the company, thus creating a value for themselves as they provide strategic guidance, sales referrals and business network contacts.



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m.jeya asked:


 

China has achieved extraordinary economic success over the past 25 years, with an average annual GDP growth rate of more than 9%. However, this dramatic economic growth has been gained at the expense of a tremendous consumption of natural resources, low levels of economic efficiency, an inferior productivity rate, and serious environmental pollution.

The China Venture Capital and Private Equity Forum, an annual gathering of global private equity and venture capital investors with an interest in China, is the largest, most comprehensive, and most authoritative forum of its kind and is the most up to date in the range of topics and issues that are covered. The Chinese government has gradually embraced the concept of knowledge economy and is introducing a series of policies to encourage the development of the venture capital industry.

General features of venture capital investment

1. Venture capital involves direct investment in high-tech companies and start-ups

Characterized by high risks and high returns, venture capital lays the foundation of a start-up company for future investment returns and capital appreciation.

2. Venture capital investment occurs in phases

The development of a product can be divided into four periods: seed, start-up, grow-up, and maturity.

3. Venture capital is characterized by professional investment

a) Venture capital, as a specialized investment product, calls for professional investment and management so that the relatively high risks involved are reduced.

b) High returns for venture capital investments are a result of the sweat equity, expertise and experience provided by the investors.

venture capital financing has given rise to a dynamic system of modern financial products and services by introducing a series of innovations that include professional investment, participation in management, long term shareholding, and the institution of venture capital financing has become indispensable in modern technological industrialization. In fact, it can be argued that a new financial system based on venture capital financing and a new industrial sector based on high technologies form the two pillars of the new economy. Please visit online http://www.dynastyresources.net in NYC city.



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sunil sharma asked:


When raising capital for a business venture, a company can either raise debt capital, equity capital or a combination of the two. Debt capital is money loaned to the company at an agreed interest rate for a fixed time period. Conversely, equity capital is money invested by owners (shareholders) for use in business operations that need not be repaid. Combinations include convertible securities which may be debt that can be converted into equity at some point in the future.

The simplest form of equity capital is common stock. Common stock has many distinguishing factors as follows:

• Common stock is not convertible into another type of security

• Each share enjoys one vote

• Dividends are payable without limit but only when declared by the board of directors

• In liquidation, common stock holders are the last priority to which to distribute assets

In venture capital transactions, there may be two types of common stock which are issued. The first is Class A common stock, which is like preferred stock without the special voting rights which some statutes require in shares labeled “”preferred.”" A second type of common stock is junior common stock. While this type of stock is not used very frequently, it allows companies to get cheap stock into the hands of key employees at minimal tax cost.

Determining what type of capital to raise and how to structure the financing transaction is of critical importance to growing ventures. As such, it is crucial to understand the key terms and consult the appropriate legal and business advisors when embarking on the capital-raising process.



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Low Jeremy asked:


There are a lot of companies who have smaller divisions underneath its umbrella. Take for example Johnson and Johnson, which produces consumer goods at the same time, has a pharmaceutical wing called Janseen Pharmaceutical.

Sometimes, the only way for a company to expand is with the help of an entrepreneur. As a result, the investor becomes a capital venture firm who will be doing this not only to jumpstart something new but also to make some money from it.

A capital venture firm is very similar to someone who will act as an investor. This is because the objective is still the same. The people in charge will be reviewing tons of business proposals until one is found that is close to the visions of the company.

There are two kinds capital venture firms. The first as explained earlier will wait till the proposal will be mailed. The second is when representatives of the company act as scouts and look for potential businesses. These people may attend trade fair and conventions or simply get the news from a rival company.

After a background check has been done, the management team will contact the entrepreneur so a meeting can be set to talk more about the idea that was envisioned by the person. If everything sounds good, then the funding will take place similar to how a student in school is able to get a grant in order to conduct the project.

The difference here is that the capital venture firm will hold a certain percentage of shares in the business. This means a team of people will be working with the entrepreneur in seeing things through. This is done to protect the investment given by the company to ensure its success in the long term.

One of the industries being funded regularly by capital venture firms is the information technology industry. Despite that, the chances of someone in another field who would like the same thing to happen is still possible because there are also companies out there looking for the next big break.

Everyone becomes a winner when a capital venture firm and an entrepreneur sign an agreement and turn that idea into a reality. This is because despite the risks involved in starting something new, the determination of the entrepreneur and the experience of the capital venture firm can easily tackle the bumps on the road by steering clear from it.

Richard worked as a mechanic for one of the biggest car manufacturers in Detroit. Given the employee’s 20 years of experience, this person has moved from one section of the plant to another making some people think that Richard can possibly assemble a car single-handedly.

Unfortunately, the poor sales performance in the past few months of the company has forced management to make a big sacrifice. This will involve slashing 20,000 jobs from the workforce and Richard was on the list.

Rather than wait for the pink slip to come in, Richard opted for early retirement. With the money saved, this individual can start a business, which was something always inside this person’s head.

The plan was to open a shop that restored old automobiles as well as serviced existing ones. Though it was a fact that there are a lot of entrepreneurs that do this, the research Richard did showed that there were not that many of these in the neighborhood.

Richard had a fat check coming in, as part of the retirement benefits but the startup capital was not enough so this person decided to get venture capital funding.

Venture capital funding is when a startup business or an existing one needs funds from outside people to sustain or keep it growing. While there are banks that can help do this, it is easier to deal with private individuals since the interest rates are not that high and these supporters become strategic partners.

Who are the people to tap when it comes to venture capital funding? Given Richard was engineer who worked on cars, it wasn’t hard to talk to one of the former bosses and other people who also love automobiles. Richard first wrote a proposal with the location of the site, projected start up capital and sales that will happen in the succeeding months and years. Since these investors saw the potential of the business, it wasn’t long before the additional money needed was given.

After three months of renovating the old building, the shop was already operating and the customers started to come in. Servicing cars was easy in fact, people who worked at the plant would drop by and have the automobiles done there. It took longer to restore old cars since the parts were hard to find.

Within a year, more than half of the amount that was borrowed from the partners was already paid. As long as the service given is maintained, it was possible for Richard to pay everyone off and perhaps even expand the business.



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Reuben Buchanan asked:


Anyone who has raised or tried to raise venture capital for their business will tell you it is no easy road. There are lots of obstacles and reasons why investors won’t invest. It’s hard to pinpoint just one obstacle but if I had to narrow it down, I’d have to say that risk is the biggest one.

Investors just have a hard time believing that the entrepreneur is going to make anything of their idea. A lot of investors are tending to lean towards established companies or listed companies because the returns are great (at the moment) and risk is much lower.

So the key is to lower the risk for the investor. This will greatly increase the chance of getting funding.

How to lower the risk factor for the Investor…

In a typical situation, the entrepreneur or promoter has had little prior experience building a successful company. If they had, they probably would not need an outside investor. It’s sort of a catch 22 situation, therefore the most successful approach for start-ups is to:-

1. Take their idea/concept as far as they can with their own funds (if possible get some sales or at least pre-commitments of sales from worthy buyers)

2. Raise small amounts of money from people who are close to them at a reasonable valuation (most promoters value their idea too high which is a turn off to investors). Say $10k or $20k each from a number of friends/family who are close to them and believe in the promoters vision.

3. Use those funds to get the product into the market and get one years trading/sales behind them.

A year’s trading gives them a couple of things. Firstly it proves up the business idea and demonstrates that there is a ready market for it. Secondly it proves that the promoter can start/run a business to some degree, and thirdly it gives some figures by which a basic valuation can be done from (for the next capital raising).

All of this lowers the risk for the next investor, who may be asked to put up $250k or even $1m if the opportunity/technology is great.

The next round of funding may come from a wealthy individual, professional angel investor, or even an early stage VC fund (the latter is the hardest to get funds from). The next investor may also take out the first couple of investors giving the first group an exit.

There are many other factors which can affect the promoter’s ability to raise funds such as:-

• General capital market conditions (at the moment, they are pretty good – most investors have a bit of spare money to play with)

• Appetite for their particular idea (i.e. anything in the green or clean energy sector is pretty hot at the moment).

• The promoters ability to ‘sell’ their idea or concept

• The promoters track record

• The investors personal situation (they may like the idea but have funds committed elsewhere or may be about to go on holiday)

• Luck (promoter may by chance stumble across right investor at right time)

Typical criticisms of the Investor versus the Promoter/Entrepreneur…

Investor criticisms:-

• Poor investor presentation (sometimes no presentation at all)

• Too early stage – still an idea on a piece of paper

• Poor business planning or lack of

• Business model is wrong

• Promoter does not have the skills required to make it work

• Idea is not scalable – limited market opportunity

• The sector is not favorable

• Idea/technology is easily copied (no trade marks/patents in place)

• Projections are too high

• Value entry point is too high

Entrepreneur criticisms:-

• Investor does not understand their idea

• Investor does not get back to them with an answer

• Investor wants too much of the company for their investment

• Investor wants control of the company (more than 51%)

• Investor terms are too tough (i.e money comes with many stiff terms and conditions)

The best advice is for entrepreneurs to get as much knowledge on raising capital as possible. There are many books including many by Professor Tom McKaskill (www.tommckaskill.com).

Also, get a mentor involved in your business who has a track record of raising capital and building businesses. They may not invest into your business, but knowledge is far better than capital. This is because knowledge will attract capital.

© Reuben Buchanan, Integral Capital Group 14th August, 2007

www.integralcapital.com.au



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Low Jeremy asked:


Everyone has a good idea. The hard part is turning that dream in the head or on paper into a reality. One of the biggest stumbling blocks is money because without the much-needed capital, it is impossible to make it happen.

The entrepreneur can get a loan from the bank to help with this endeavor. But if the interest rates are to high or the person does not have collateral, then this is not such a good idea after all. The best thing to do will be seek out a venture capitalist. The money this person will infuse into the business will go a long way in starting it or keep it going.

The first thing the entrepreneur needs to do is to write a business proposal. Research has shown that more than 80% of those who decided to start something fail in the end because no studies were conducted. The document must have a clear idea as to direction of the business, how much will be needed as well as how long before the return of investment starts coming in.

It is not that difficult to find a venture capitalist. The hard part is selling the idea because there are also others who will be sending a proposal, which has similar contents in the texts. Apart from reading the proposal, the entrepreneur will also have to explain this in person why this should be accepted over the others. An ocular inspection of the place will also need to be since such as decision will not be made overnight.

Once hooked and the money is approved, both the entrepreneur and the capitalist investor have made a partnership which will hopefully last for the long term. The capitalist investor does not only give money. There may be times that the entrepreneur is stuck in a crossroad and this may also offer good advice. After all, the money of the person is in here and will surely do everything possible to get it back with a profit.

In the end, the venture capital investment is similar to a loan but does not have high interest rates compared to a bank. It is also like launching an IPO but without the need to release a certain number of shares to the people. Will it be beneficial to talk with a venture capitalist? The answer is definitely yes because it becomes a win-win situation for everyone without one side ever getting the better of the other.

Venture capitalism is one of the things that keep business booming in the country. It is one of the ways that helps new businesses thrive and flourish. This is because, venture capitalists are forever looking for new and innovative ventures that can potentially yield big return on the long term. They are not much into businesses that are already flourishing but those that are just starting or those that are in need of restructuring.

What is venture capital?

This refers to the money that a venture capitalist gives to a business or venture in exchange for a stake in the company. Instead of loaning the money, venture capitalists invest in the business hoping that it will yield a great deal of money in the future. This means that whatever the future earnings and profits of the company, the venture capitalist has a share on it. The same goes with the loss.

Risky business

Venture capitalism is indeed a risky business but it has become the lifeblood of the industry as most start-up companies rely on these kinds of investments to keep their business going and to make their ideas come to life. Typically, people with great ideas and the know how to execute them go to venture capitalists for their capital. Because they are not yet bigwigs in the industry, these people do not have access to traditional capital resources such as banks and other financial institutions.

Venture capitalists on the other hand look for companies that are small and new but have a really promising future. This way, they bring in little cash and get millions in return when the company becomes a success. Usually, venture capitalists have a team of people that keep tabs on the goings on in the business community. Like a hawk, they look for companies that are vulnerable but have great potential for growth.

A venture capitalist can be a person or an organization. A individual venture capitalist will often select just a few prized investments that he or she will watch like a hawk. Venture capitalist firms, on the other hand, can command billions of dollars in earnings and investments, depending on their size and their area of influence. Some venture capitalists have investments all over the world. Some VCs, especially the big ones, also have affiliate banks that provide the cash flow. Some even have subsidiaries that use the money in other investments to keep it rolling.



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oddcat1978 asked:


I have some venture capital and would like to buy some gas contracts and maybe some gold contracts. I understand the risk of loss please don’t tell me.

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john asked:


Source: blogs.smh.com.au

Some ideas are doomed to fail, but most are killed by their creators.

At least, this is the dominant school of thought. But is this really the case?

Just about every venture capitalist I’ve interviewed has said within minutes that startups with opinionated founders have got Buckley’s chance of securing venture capital. Not malleable, agreeable, or willing to move aside for someone more experienced? Then venture capital is not for you.

I bought into this conventional wisdom until a few months ago when a contact of mine told me about the problems venture capitalists brought to his board room: the clashes of egos, the hodgepodge of agendas, and worst of all, the obsession with the big picture when the product itself wasn’t working.

So I was interested to read last week that Sean Parker, the co-founder of Napster and first president of Facebook, stirred Silicon Valley with the launch of a new venture capital fund alongside one of the founders of PayPal, Peter Thiel.

The name of the fund says it all. Called the Founders Fund, it exists in part to support, rather rather than eject, founders.

“Firing the CEO is almost always the wrong decision. In the late 1990s the standing question was, Are you willing to step aside as CEO? We’re more likely to ask, Are you willing to be CEO the whole time?” Parker says in this interview.

This interesting about-turn is a theme that dominates Inc. magazine’s profile of John Abrams, the founder of the world’s first online social network, Friendster. As Inc. tells it, Abrams’ startup was backed by an all-star cast - powerful and experienced investors, and the best managers money could buy. But far from being the silver bullet, its move into the big league was its kiss of death.

Once tagged the next big thing, a “no-brainer” with Kleiner Perkins Caufield & Byers doing the driving, Friendster turned out to be a spectacular failure. Now a Harvard Business School case study on how not to manage a startup, Friendster ran out of money last year and recapitalised at US$3 million.

It’s turne that Friendster was a victim of mismanagement but Abrams argues that it wasn’t a singular failure; it was a systematic failure. With venture capitalists investing on the basis that they’ll strike it rich with one or two investments in every ten, the system was stacked against him. In short, venture capital is designed to spawn far more failures than successes.

Inc.’s story is a fascinating look at the inner-workings of a star-studded board. There were so many cooks in the kitchen at Friendster its corporate strategy was nothing short of schizophrenic.

Abrams says he suppressed his entrepreneurial instincts because of the assumption that others knew better. He’s starting a new business, and while he intends to take his time, he plans to take lots of risks and avoid venture capitalists.

What do you think about venture capital? Does it kill more than it nurtures? Or should startups like it or lump it because this is how the game is played?

Article Publish by: http://www.investmentbankingcentral.com



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