Venture Capital and Its Characteristics

More businessmen are getting into venture capital. Whether as entrepreneurs or capitalists themselves, more people are getting into it because of the promise of fast, easy money in a relatively short time. While many may attest to the financial security that the scheme brought, there are also just as many unfortunate stories that have circulated as well. 

Here are some characteristics of venture capital that any businessman must know.

Venture capital firms are made up of individual investors or corporations. Sometimes the participants are institutional investors like insurance companies, foundations and pension funds. Aside from these firms, there is also what is called as angel investors. These are individuals or a smaller group of investors that operate the same way as venture capital firms. They all function the same way, and that is to fund small and starting businesses, ending in a buyout, merger or IPO.

Finding start up capital is not easy. First, you need to fit in the investment criteria that these firms provide. There are several of them listed in directories or the internet. The line of business that you have in mind should match that of the firm.

Otherwise, there is lesser chance for your proposal to be approved. Also, you need to have a business proposal that would persuade the firm. It must be concise, well-written and well-researched. With the hundreds of proposals that they get, it is crucial that yours should impress them.

Venture capital investments are different from venture capital loans. For the latter, the risk is borne by the investor and not by the investment firm. The entrepreneur must repay the amount plus interest, regardless of the company's success or failure. For venture capital investment, it is the firm that bears the risk. This explains why more people opt for venture capital investments than loans.

Since the firm bears the risk, it is therefore the one entitled to a major part of the profits. These investors seek maximum gain at the shortest period possible. They're eyeing on at least a 100%, even 700%, return of their investment. That is why they tend to have more control over the company than its entrepreneur. If you have problems with relinquishing control over the company, then this scheme is definitely not for you.

The good news, though, is that these capitalists are experts in the business field. Their policies and strategies have already been tried and tested. Should any of their plans fail, they are sure to have back-up or alternative plan. In other words, these people know more than the new entrepreneur and can help a great deal in the management of the company.

Knowing the characteristics of venture capital may prove to be useful to any entrepreneur. With this simple guide, you will have a glimpse of what it's like and what to expect from it. This should be the first question that any aspiring entrepreneur should ask: is this right for my business? Venture capital is not fit for everyone.

If you do not fully understand what it is and how it works, then you might as well not consider it – yet.
Learn more about the topic by reading more articles and acquiring more information, following our blog. If it has worked for others, then there is no reason why it shouldn't work for you too.

Silard Matrai 

https://twitter.com/silardmatrai

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Common Pitfalls to Avoid in Applying for a Venture Capital

Most entrepreneurs know what they have to do when searching for venture capital. But there also common mistakes that you have to avoid when presenting your business. An applicant can be rejected for a number of things.

Most venture capitalists are only required to approve a certain number of business plans they come across everyday. Your business must have a competitive edge over others that will get the attention of the investors.

You have prepared all of your legal documents and practiced your pitch a thousand times only to get rejected. At some point, you won't even know why you got rejected. Don't wonder if applicants get rejected over something trivial. To be able to increase your chances of getting approved you must know what to do and the common pitfalls to avoid when applying for a venture capital.

Our "Do not want to do list":

Don't be too technical. Investors pay more attention to number and figures because they understand them better. Although this may give the impression that you know your business like the back of your hand, the investors may not understand you. Your presentation should be able to communicate well with your audience.

Don't give false hopes. Overly optimistic projections may ruin your credibility. Investors rely on credible financial projections not expectations. Unless your assumptions on future earnings are back up by credible sources, don't mind bringing them up. It's better to present realistic figures that can be achieved by the business.

Do not provide incomplete financial information. You must present both past and projected financial data. Historical financial information informs your investors what the company has accomplished and communicates future projections. You will need balance sheets, income and cash flow statements.

Sales are not the solution to all problems. Investors are looking for businesses that have potential for long term returns. Earning in small profits that can be collected in a timely basis proves a better survival strategy. Earning large amounts of profits while loosing money at the same time will ruin your business.

Concealing problems of the business is not a good idea. Investors also understand that all business has problems. State the whole story and inform them how you will manage and solve it in the future. Owing up to past and existing problems is better than hiding them. As long as you can present a solution your investors will understand.

Low price leverage. The low price strategy can only be achieved by one leader in an industry. It's not a good sign to your investors if you are relying on a low price rather than the quality of your product or service. Wal-Mart is one the few who can manage to capitalize on this strategy. (...but can only with import from China) 

Overconfidence in your product is also not a good idea. Your idea maybe unique but you should always remember that the possibility of a competition will always be there. Every business profits from a need and any smart entrepreneur knows that. Your ideas may different but looking at the whole picture you may also be focusing on a need that others are also addressing. 

Not stating the facts in print. All entrepreneurs have a clear vision of what their business is but not all of them are good in putting them in print. It's important to be the author of your own business plan than get outside help that may not be bale to capture your thoughts.

Silard Matrai

http://twitter.com/silardmatrai

Venture Capital - What Happens After The Due Diligence Process

 If the venture capitalists are interested in your company after completing their due diligence, they will offer a binding term sheet. It will reflect the draft term sheet that has already been agreed to but this one will be a legal contractual agreement. Then the real negotiations start.

There are different types of financing to consider: debt, equity, and mezzanine.

Debt financing is the most objective and is therefore the easiest to negotiate. If you have the assets to support the debt and the income to support the interest payments, the negotiation period will be very short.

Equity financing negotiating is more complicated and revolves around agreeing on valuation and percentage ownership. Discussions usually requires several days.

Mezzanine financing involves a mix of equity, debt, convertible debentures and preferred shares. Negotiating the technical aspects of each so that an agreement can be reached between the investor and your company can be time consuming.

Another dictating factor is the number and variety of financing offers that you receive. It is the intermediary’s role to help you bring more than one offer to the table and assist you in evaluating and negotiating which one is best suited to your company’s needs based on their previous experience.

Venture capital term sheets are time limited. You have to quickly make up your mind if you want to accept or reject the offer. The short time period is in place to prevent you from using one term sheet to solicit new offers from other venture capitalists.

Who Are Venture Capitalists?

 Venture Capitalists are wealthy private investors who can help finance your business either it being a business in trouble financially or a new business venture.

There is usually a five-year lock-up on Venture Capital investments, this means the Venture Capitalist or the business they are helping to fund cannot get out of the deal until the five years is up, sometimes this may be longer depending on the agreed business plan.

They also charge management fees and incentive fees as well as taking a good-sized share of your business. Unlike Business Angels, Venture Capitalists like to have a director or management role within the company to discuss the running of the business as well as keeping a close eye on their investment making sure the business succeeds. But there are a few Venture Capitalists who like to give the company the finance they require then take a back seat and let the company who knows the trade etc. and let them run the business on a day-to-day basis.

Finding the right Venture Capitalist for you may be a scary prospect but there many Venture Capitalist firms now available that have Venture Capitalists waiting to invest in a new and upcoming business with good prospects. Making a proposition to a Venture Capitalist can be a scary thought, you need to remember they will want to know exactly what your plans are for coming years, the market you will be promoting your product, service in as well who your target audience is for this as well as how much it will cost to make if necessary and the cost you will sell it for, showing the profit you will make on each product, item or service. One thing to remember is that Venture Capitalists don’t care about the dreams you have about this venture, all they want is a good return on their investment in your business.

Before going to see a possible Venture Capitalist the best thing to do is to get advice from other business people in the same area you want to go into to get their advice on your product and or service and their honest opinion of the idea.

You will need a well-detailed business plan when you meet up with the Venture Capitalist and if you are turned away by them don’t give up keep trying, if show people you’re serious about your venture and won't fall at the first hurdle your more likely to win people over with their own weaknesses.

Some points to consider are:

• Put all your thoughts on your new venture on paper, brainstorm everything

• Research your proposed market or industry

• Get someone to argue against you to see if you have a watertight solution

• If you have little knowledge of a certain area ask for help from people who know

• Create a budget, showing every detail you can think of

• Read thoroughly your business plan to ensure there are no errors

• Know who your competitors are

• Present yourself well – the more presentable you are the more likely you are to be respected by the Venture Capitalist make a good impression

• Make sure you know your speech, your business plan back to front so you come across confident as you only have one chance

To your success in finding venture capital for your business, 

Silard Matrai 

#VC4U

How to Write A Business Plan In 2021 That Produces Results

Below the video you will find a valuable pdf that can help  a lot. 

To your success, 

Silard Matrai 

VC4U

Will Your Business Really Benefit From Venture Capital?

 Not all businesses can attract venture capital. Venture capital is provided by a firm of professional investors that are generally seeking high growth business opportunities to invest in. They provide funds to help you grow your business but in return, they often want shares in the business.

If you have a brilliant idea that has huge growth potential and are struggling to raise money through the normal channels then this route might be ideal for you.

Be prepared to give away a large chunk of your business and remember that most venture capitalists will also want a say in how your business is run! I have met business owners, who thought they can sell hope to venture capitalists or to a business investor. Nothing is further away from the truth. 

This method of raising funds is also a great way to get some fresh minds looking at your business idea. Venture capital investment companies have been investing in great ideas for many years and know how to turn great concepts into reality.

Do not approach a venture capital company if all you are seeking is money to clear your existing debts. They will not be interested! They are also not interested in providing funds so that you can buy your dream car or luxury house.

They are in the business of providing funds so that they can make money for themselves with the funds they provide you to assist your growth. Got the idea?

A well researched and carefully crafted business plan will definitely help you. How are you going to use their money? They will want to see it being used for growth, sales, marketing, and creating value for them. They will not be happy if you use their funds to make a beautiful office! Remove any expenses that are not critical for growth and show them how you can generate profits and a return from their investment.

When a venture capitalist firm looks at your idea, they are also examining you. Millions of people have great ideas and to be honest, the majority of these people do not have a clue how to execute a plan.

If they like your idea, then they will want to get to know you in detail. What are your work ethics like? Why should they back you over the hundreds of other people that are competing with you for their money? Remember that they are most likely to be seeking a brilliant person with a great idea that can deliver them a "home run."

It also costs a lot of time and money presenting your idea to venture capitalists! They do not give anybody any money at the first meeting. In fact, they might even meet you a dozen times only to completely reject your idea at the end! Be prepared for this and possibly try out your business plan with more than one firm at the same time.

The costs will not be that much greater to present your case to two different companies at the same time! Remember that you are also dealing with personalities and one wrong word and they will kick you out before you can count to ten. I never said that it was going to be easy, did I?