Len McDowall asked:


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



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Georgia F asked:


Also - if you know the answer to any of the following. Thank you very much.

2) What does it mean when the government “pluggs” tax loopholes for employees?

3) Is is possible to get a list of the SEC’s “sanitized investments”?

4) What are non-regestered security investments, or private placement memorandum?

5) A person lost millions in an investment deal, and had to pay the tax department for untaxed income that went into the deal. *What is the “untaxed income”?
*Is there anyway to avoid this?

6) What does it mean for the p/e to be high or low in an investment?

7) What are venture capital investments?
Why do investors build biusnesses in order to buy assets?

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Brian P asked:


There are several websites offering to invest in peoples ideas. Everything from Venture Capital to Angel Investors. What is the best way to find the right one? And I would like to know any suggestions on proposing the idea to them. I have an idea that will drastically change most of our lives for the better. Not only that, but my idea will help the environment.

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famousbots asked:


I’m looking for venture capital money.
I’ve already completed my business plan.
I need $400,000 to open the doors and $8M to get it off the ground and operate for the first two years.

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Len McDowall asked:


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



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nader r asked:


ALSO why do VC’s provide financing at all I mean say you need money for your business and I give it and I want a 51% stake in the company as the venture capital firm but I am PAYING FOR THE WHOLE THING how does this help me?

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Hannah asked:


I want to search online first to get venture capital firms that are interested in investing to manufacturing companies in China. Do you know which websites are good for them?

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Pamela P asked:


If I try to get venture capital to start a small business. What percentage will I have to pay on average?

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Carson W asked:


I plan to go to UVA and get a degree. What degree should I get for venture capital? (economics, undergrad business, or finance?) I think one of my strongest suits is my international capability. I know English, French, and Chinese fluently, and have passable Spanish, Arabic, and Hindi. Where could I get an entry level job, how much will it pay, how fast does it promote, and what is the possibility I could actually get one? Thanks for any help.

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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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