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Obtaining venture capital is substantially different from raising debt or applying for a loan from a direct lender, like a bank. It takes time, effort and energy to create a compelling sales package that venture capital groups will review, find interesting, and work to fund.
Lenders have a legal right to interest on a loan and repayment of the capital, irrespective of the success or failure of a business. Venture capital elects to be invested in exchange for an equity stake in the business. As a shareholder, the venture group’s return is dependent on the growth and profitability of the business, which is based on success achievement. This return is generally earned when the venture capitalist "exits" by selling its shares when the business is sold or divested to another owner.
Funding
Whereas a lender is legally entitled to interest on his loan and can take legally take collateral to satisfy debts, venture capitalists own equity in the company and therefore can often be the last in line if the business fails to generate enough capital to pay the investment back.
A lender earns returns from interest on the funds injected. Equity holders earn returns from profits and company growth. The venture capitalist earns the majority of their returns when they dispose of their stock--- which explains why they may study up to 400 different potential investments before they select one in which they want to invest.
The challenge is for you to develop a business case for your project that makes it the one in 400 potential investments they simply must make.
Since VC firms can logically expect to hold an investment for as long as seven years, they are interested in ventures which offer potentially incredibly high growth rates to make up for the long waiting period. In comparison, a home is seldom held for more than seven years and that is considered to be a very illiquid investment.
Companies that seek venture capital typically have high up-front set-up costs.
Because startup companies rarely demonstrate strong cash flow and generally can offer few assets to serve as collateral, VC investors may represent the only source of high levels of funding. This “only source” position can make VC money very expensive to the business owner, requiring them to give up far more of their equity than they would normally like to surrender.
Preparation
A VC firm’s ultimate goal for a company is usually to take it to the public markets (Stock exchanges) whereby a share stock that they may have acquired for a dollar is sold on a stock exchange for $20 or more. As a venture capitalist, for example, Mitt Romney acquired a net worth of $250 million before his run for the US presidency in 2012.
Business owners who want to take their businesses public know this is the high road of wealth creation. These business owners will start a company, make it very profitable, and eventually take it to the stock market to sell off shares they acquired for one cent for $20 or more. Bill Gates, the late Steve Jobs, and all of the Walton family plus and a large number of The Forbes 400 Richest Americans amassed billions in wealth through IPO stock sales.
To prepare for such possibilities venture capitalists assist in four defined stages of a company’s development. Let’s look at each of these four and apply some ideas to each stage:
1. Idea generation: An idea that can be used for business purposes. If you have an idea, how you apply the various attributes of business to that idea can make an immense difference in the mid-term and long term success of the venture.
2. Start-up: “A startup company or startup is a company or temporary organization designed to search for a repeatable and scalable business model.
3. Ramp up: Ramp up is a term used in economics and business to describe an increase in firm production ahead of anticipated increases in product demand. Alternatively, ramp up describes the period between product development, and maximum capacity utilization, characterized by product and process experimentation and improvements.
4. Exit: In VC terms, the Exit is the selling off of the VC’s equity to achieve profits or to mitigate losses.
Finding a Venture Capital Firm
There are no public exchanges listing VC stock for private companies therefore companies desiring VC investors usually meet in methods such as:
‧ VC sponsored investors conferences and seminars. These have become big business in recent years, where a group will put together ten or twenty representatives of venture capital firms, who come together, meet with potential referrals—as well as potential investors---and begin the “courtship ritual.”
‧ Internet searches or online listing companies. One prime example of this is the website www.GainStreamGroup.com. Gain Stream Group has compiled, contacts, determines the legitimacy of, and then makes venture capital groups and contacts available to those searching for specific types of lenders. The advantage of a Gain Stream Group over purchasing or just using a blanket list of lenders is that Gain Stream Group looks at the stage your business is in, helps assess the area of lending that would be most helpful, and targets the lenders contact info that you receive to a class and type of lender that would be best able to meet your lending needs.
‧ Referrals from business associates. Often, you will meet and become acquainted with others in your specific industry, and these contacts may be quite helpful in putting together a list of lenders who may have financed their projects along the way.
It is very important to verify that the VC firm you are interested in working with is a legitimate firm and not a group of criminals attempting to steal your business idea or in some way defraud you of funds.
DISCLAIMER: All information, content, and data in this article are sole opinions and/or findings of the individual user or organization that registered and submitted this article at Isnare.com without any fee. The article is strictly for educational or entertainment purposes only and should not be used in any way, implemented or applied without consultation from a professional. We at Isnare.com do not, in anyway, contribute or include our own findings, facts and opinions in any articles presented in this site. Publishing this article does not constitute Isnare.com's support or sponsorship for this article. Isnare.com is an article publishing service. Please read our Terms of Service for more information.Dr. Brent Lundell owns http://www.gainstreamgroup.com/, a venture capital sourcing and consulting company, and is a partner in The Guinn Consultancy Group, Inc. The Guinn Consultancy Group provides a wide array of business services, including seminars, webinars, and venture capital sourcing services.Venture Capital Firms and Funds Submitted by: Dr. Brent Lundell, PhD, MBAVenture Capitalists What is a venture capitalist. A venture capitalist is an individual who makes investments in businesses before the firm goes public. In addition to bringing money to the business venture, capitalists usually bring managerial and business-specific talent to the business, and will take assume equity and generally a board seat in return for investment in the business. What is a venture capital fund...VC Fund Types, Players, Structure Submitted by: Dr. Brent Lundell, PhD, MBATypes of Venture Capital Funds Let?s do a quick review of the types of venture capital funds. VC firms differ in their investment approaches. Some companies ? Invest for a quick turnaround, by going public?selling within the public equities markets ? 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?? 1 → His business with the cane was hilarious2. the principal activity in your life that you do to earn money
?? 1 → He's not in my line of business3. the activity of providing goods and services involving financial and commercial and industrial aspects
?? 1 → Computers are now widely used in business4. the volume of commercial activity
?? 2 → Show me where the business was today1. a rightful concern or responsibility
?? 1 → It's none of your business2. an immediate objective
?? 1 → Gossip was the main business of the evening1. business concerns collectively
?? 1 → Government and business could not agree2. a commercial or industrial enterprise and the people who constitute it
?? 1 → He bought his brother's business?? 2 → A small mom-and-pop business?? 3 → A racially integrated business concern3. customers collectively
?? 1 → They have an upper class clientele
Definition of the Term: Capital1. the upper part of a column that supports the entablature
1. one of the large alphabetic characters used as the first letter in writing or printing proper names and sometimes for emphasis
?? 1 → Printers once kept the type for capitals and for small letters in separate cases?? 2 → Capitals were kept in the upper half of the type case and so became known as upper-case letters2. a book written by Karl Marx (1867) describing his economic theories
1. the federal government of the United States
2. a center that is associated more than any other with some activity or product
?? 1 → The crime capital of Italy?? 2 → The drug capital of Columbia1. wealth in the form of money or property owned by a person or business and human resources of economic value
2. assets available for use in the production of further assets
1. uppercase
?? 3 → Many medieval manuscripts are in majuscule script2. of primary important
?? 1 → Our capital concern was to avoid defeat
Definition of the Term: Equity1. conformity with rules or standards
?? 1 → The judge recognized the fairness of my claim1. the ownership interest of shareholders in a corporation
2. the difference between the market value of a property and the claims held against it
1. the members of a business organization that owns or operates one or more establishments
?? 1 → He worked for a brokerage house2. become taut or tauter
?? 1 → Your muscles will firm when you exercise regularly1. with resolute determination
1. strong and sure
?? 2 → Gave a strong pull on the rope2. unwavering in devotion to friend or vow or cause
?? 3 → The true-hearted soldier...of Tippecanoe3. securely fixed in place
?? 1 → The post was still firm after being hit by the car4. pleasingly firm and fresh and making a crunching noise when chewed
?? 1 → Crisp carrot and celery sticks5. not soft or yielding to pressure
?? 2 → The snow was firm underfoot6. possessing the tone and resiliency of healthy tissue
7. marked by firm determination or resolution; not shakable
?? 4 → A man of unbendable perseverence8. securely established
?? 2 → Holds a firm position as the country's leading poet9. not subject to revision or change
10. not liable to fluctuate or especially to fall
11. (of especially a person's physical features) not shaking or trembling
?? 1 → His voice was firm and confident
Definition of the Term: Stream1. the act of flowing or streaming; continuous progression
1. a steady flow (usually from natural causes)
?? 1 → The raft floated downstream on the current1. dominant course (suggestive of running water) of successive events or ideas
?? 1 → Two streams of development run through American history1. a natural body of running water flowing on or under the earth
1. something that resembles a flowing stream in moving continuously
?? 1 → A stream of people emptied from the terminal?? 2 → The museum had planned carefully for the flow of visitors1. exude profusely
?? 1 → She was streaming with sweat1. move in large numbers
?? 1 → People were pouring out of the theater?? 2 → Beggars pullulated in the plaza2. flow freely and abundantly
?? 1 → Tears streamed down her face3. to extend, wave or float outward, as if in the wind
?? 1 → Their manes streamed like stiff black pennants in the wind1. rain heavily
?? 1 → Put on your rain coat-- it's pouring outside!?? 2 → It was streaming all day long
Definition of the Term: Venture1. any venturesome undertaking especially one with an uncertain outcome
2. a commercial undertaking that risks a loss but promises a profit
1. an investment that is very risky but could yield great profits
?? 1 → He knew the stock was a speculation when he bought it1. put forward, of a guess, in spite of possible refutation
?? 1 → I am guessing that the price of real estate will rise again?? 2 → I cannot pretend to say that you are wrong1. proceed somewhere despite the risk of possible dangers
?? 1 → We ventured into the world of high-tech and bought a supercomputer2. put at risk
?? 1 → I will stake my good reputation for this
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