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The Most overlooked Principle to getting Venture capital
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The Most overlooked Principle to getting Venture capital By Abe
Cherian Copyright ? 2005
Venture capital is a possible source of funding for new
relatively unproven enterprises that appear to have promising
futures. However, such money is often hard to come by.
Be realistic in your quest for venture capital. Venture capital
firms expect a business to be able to return their investment
not only with interest, but with a large profit. Many venture
capital firms are affiliated with banks, insurance companies,
other financial institutions and large corporations.
Some are owned by individuals or private groups of investors and
a few are publicly held. Once you accept venture capital, you
have relinquished some of your autonomy and accepted the
understanding that the venture capital firm will take a large
share of the profits you earn.
As an entrepreneur, you should understand the nature of a vendor
firm, before pursuing this as a financing source. This type of
investor expects a projected return on investment that is
directly related to risk. The greater the risk, the greater the
return expected.
Typically however, an investment firm will not be interested in
getting involved with a new firm until the business has
established itself in some way, so the risk factor can be
determined.
The venture capital firm and its interest usually depends upon
the stage of the new firm's development. Once the new firm has
established itself and has a working organizational structure, a
viable business plan and start up arrangement, a venture capital
firm may be interested.
However, some firms prefer a later stage of new business
development, perhaps when the new company is in its second
or
third round growth state and needs more capital either to carry
out expansion plans or to tide it over until a merger or public
offering carries it to the next stage of corporate growth.
A company's business plan serves as the primary analytical tool
for the venture capitalist. In analyzing the plan, a venture
capital firm would most likely focus on three features.
The product or service. Investors seek product or service
innovations that give the company a strong competitive
advantage. A new idea, backed by market surveys (measuring the
appeal of the product or service and its potential market) may
be tempting to such investors. Management capability.
No matter how good the product or how innovative the service,
the quality and experience of the management is a key factor in
the success of the business.
The astute investor is well aware of this and looks for solid
evidence of such skill. The industry's growth. Investors also
want to be sure that the product or service is in a growth
field. A significant or revolutionary product improvement, by
itself, may not have appeal in a declining product or service
category.
Most venture capitalists purchase common or convertible stock
rather than burden the fledgling enterprise with interest
payments on debt or debentures. They may possibly want more than
50 percent ownership.
Additionally, while the venture capitalists may insist on
sitting on the Board of Directors or offering management and
technical advice, they are rarely interested in the day-to-day
management of the business, unless its survival and their
investment is at stake.
Keep in mind that the minimum investment is generally from
$50,000-$500,000, but investment ceilings are almost unlimited.
About the author:
Abe Cherian is the founder of Multiple Stream Media, a leading
performance-based Internet advertising company dedicated in
helping small businesses create online presence, brand
recognition and online automation. Main company web site:
http://www.multiplestreammktg.com
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