Archive for the ‘Venture Capital Financing’ Category
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Finding Investors (For Businesses) – What You Can Do
Funding is the most pressing problem in any kind of business. Business owners always think of ways on how to make their businesses grow and expand. Ideas are easier to arrive at than solutions on where to find the money to fund such venture.
Finding investors is a very hard undertaking. The market is never short of investors but your potential to attract a number of them depends on their chances of getting a return according to their calculations. You have to be able to persuade them that their money has a higher chance of multiplying in your business than anywhere else. You have to provide sound evidence that your business can protect and take care of their investment.
The task of finding investors isn’t so hard when you have a definite business plan to present. It is very crucial for investors to know what your future plans are for the business. You simply cannot approach them empty-handed. You have to design your plan realistically and never make one up when you are confronted with candid inquiries. A sensible business plan should map out well-researched strategies that are relevant to the current flow of the market. It would help you get your message across more clearly if you will indicate how competitors work and your plans to outdo them or make your company’s performance better than the rest of the similar businesses in your industry.
Finding investors will take some time. A bank is a good starting point. Your banker can offer you a substantial loan that will get you started and might also know people who are willing to invest on businesses like yours. If you belong in any business organization, you can use your connection to get inside information and ask people who might know someone interested. When you have found potential investors you’ll be able to convince them more easily if you present them with terms and agreements that they might find reasonable and works for the benefits of all parties involve. Just as important is an even-handed exit strategy for divestment.
A written agreement realizes a lot of things. It puts across the message that you are taking investors seriously and are prepared to do important deals. An agreement puts investors’ minds at ease because it clearly drafts what they can expect from the deal if they’re willing to make one. It protects your interests as well as your investors’ and the document should be legal and binding.
Another crucial presentation you have to give to your investors is a track record of growth. Finding investors (for business) is an elusive hunt if you won’t be able to provide proof that your business is doing an uphill climb on the chart. Your investors should get the impression that your business is stable and capable of maintaining a constant increasing growth.
It doesn’t have to be a super impressive statistics but it should be enough to persuade investors that a return of their investment is possible. It will also show them that you work hard to set and meet your goals. Financial statements should go with your record. There should be nothing in there that will indicate your company needs financial salvation. Be honest with all of your dealings. Investors aren’t looking for huge numbers in financial statements. A promising investment is all they want. Approach your accountant to help you arrange your financial situation more attractively.
Business Investor FAQ:
Question: What is the best way to find business investor’s funding partners for a business?
I wanna brand off from the company I work for and start my own business. I am 100% sure it will work no doubt in my mind. I want to find an investor to fund the startup. It does take a little to start it up but you’ll get your initial investment back in months and from that point on it will just be profit.Answer: There are two ways of doing this.
1) There is a huge network called Jump Start which has 50 Angel Investors. Their job is to find start up companies like yours and fund it. Last year they invested 18 million dollars in various start up companies.
2) You may want to sign up on GlobalLinker. They have a growing small business network and you should be able to find investors and partners. They offer free business tools and global networking platform.
Question: Business Investor?
Looking for business investor for new fashion line. What channel to go?Answer: You might want to try collecting trade magazines and calling numbers or getting contacts from your friends.
Question: Does anybody know any investor/business partner that would like to invest in my startup Company?
I’m looking for a real investor/business partner that is willing to invest in my company. It was established in 2002. I have great experience with Manufacture in Hong Kong. I Have four years of experience as a graphic designer, I design my own clothes by hand on a sewing machine. Also I have my own business plan ready for review.Answer: It depends on where you live, but most states’ departments of commerce have economic development mandates. To this end, these departments have people who are trained to help develop small businesses.
There are small business development consultants, usually associated with community colleges and the land grant universities, that have classes and all sorts of expertise to help you.
Since you already have your business plan, and a sample product, contact the SBDC in your area. Once you get to the point where investor is your next step, they know who is interested in investing.
One more idea is to check with your county extension agent at the courthouse or government center. They are in the phone book. Extension is a service of the USDA and your state’s land grant university. Textile businesses are one of their specialties.
Question: What would be a good way to go about looking for a small business investor?
Is there a site or forum that is legit for this. I have a great business idea in the medical field.Answer: Medico-business associations, consultants, angel investors, joint ventures are some avenues to try for funding. A lot of scientific associations & government bodies too can help if you can clearly demonstrate commercial viability of your idea.
Question: Is a business investor entitled to part of the business?
If I own a business that I just started and someone invests $3,000 for a profitable return, after I pay them do they have any claim to the business? a verbal agreement was made that they would get 10% of profit atleast until they were paid maybe 2,000 over investment, and after I pay him can he take me to court for more?Answer: Verbal contracts are hard to prove in court. Yours will be particularly difficult because you are using words like “at least” and “maybe.” It sounds as if he was looking to be an investor, and you were only looking for a loan. That is not good, because there was no meeting of the minds about intent.
Question: Can a minor (say 17) enter a legal contract with a business investor?
Say a 17 year old filmmaker is offered money from an investor to finance a film. Would the minor be able to take the money and sign the necessary paperwork and have that hold up in court?Answer: No. Minors can not be bound by contracts as they don’t have the capacity to consent. However, if the minor acts on the contract AFTER his 18th birthday he may be said to have affirmed the agreement and therefore be held to the terms.
Question: I need help finding investor business loans?
I’ve heard of websites that offer business loans to entreprenuers from individual investors.Answer: There are many, though you need to approach them with a business plan, otherwise you are spinning your wheels. Many professional writers exist and are affordable. Try either Masterplans or VanSwiss. Both have good reputations and are affordable.
Question: What percentage of a business do you typically have to give to an investor funding a business idea?
I’m going to be starting a business and I have a person that is willing to handle all of the development costs etc. Since it is an online business, the start up costs are pretty low for a business, under $10,000 definitely, probably under $5,000.Answer: In a TYPICAL venture deal (yours is not, of course, since it’s so small), it would be pretty common to give seed round investors 20-30% of the equity. Another way to look at it is that private equity investors expect to get 15x-20x their investment if the company is very successful. If your company (assuming success) might have a market cap of $1MM, then 20x on a $5M investment would only be 10%. It’s usually a negotiating process in any case.
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What is an Angel Investor? Find Out Today
Yes, “angel investors” are literally agents of blessing – affluent people who invest on start-up business owners. What is an angel investor, one may ask. To some people, they are known as a business angel or informal investor. One thing is certain first of all, they exist in the business world.
There are a number of websites or business directories which grant a small entrepreneur some ideas of possible financiers for his business. It should be noted though that financial funding provided by “angel investors” is neither pure donation nor charity. The amount invested by these angel investors are expected to be profited from at a later time through debt payment or ownership equity.
Given such set-up, it must be important for a start-up retailer to ensure that his small business has the makings of a seriously potential success story, as the amount of investment of an angel investor, is dependent on this factor. Compared to venture capitalists that pool together money from various investors, an angel investor, typically invests his own funds.
The amount given by investors, called the angel capital, is usually used as seed funding for the business to sustain the start-up financial costs of running the business. Usually, angel investors are family and friends of the entrepreneur. Should this not be the case, one thing remains consistent, trust and faith in the entrepreneur is a strong factor prior to the surrendering of the angel capital to the aspiring businessman.
There is no specific and standard amount prescribed as angel capital. They can range from a few thousand, to a few million. Given such, it is usually expected by angel investors that their “loaned” amount would not yield immediate return of investment compared to most investments.
Hence, most investors invest their sum of money to “semi-charitable” causes to sort of justify the leeway given to the expenditure. Most companies in the United States do secure angel funding. These companies range from software industries, health care services, medical services and equipment providing companies.
Since investors enter into a high-risk situation by choosing to fund start-up businesses, they usually require a very high return on investment – typically an amount 10 or more times higher than their original invested amount. Typically, they expect this return in a period of five to seven years. Since they are aware of the potential loss as well, given the “unstable venture,” angel investors require a defined exit strategy from the entrepreneur which includes possibility of public offering or acquisition.
There is no sure formula in meeting angel investors to invest in one’s business. Oftentimes though, one may expect very wealthy retired entrepreneurs or company executives, to be interested in angel investing for reasons beyond monetary benefits. Commonly, there are types of angel investors who keep themselves linked to an industry they have worked for, as such remains close to their hearts.
This is their way of maintaining relations and updating themselves of current developments in a specific business arena. Otherwise, their “angel investing,” is something they consider as a form of mentoring another generation of entrepreneurs. After all, should they provide the seed capital, they will inevitably get involved in the project; thereby allowing that they get to use their experience and networks, which somehow yields personal satisfaction and reward.
Angel Investor FAQ:
Question: Where can I find a Angel Investor to help fund my expanding business?
I’m expanding due to a very large increase in sales and orders. Where can I find an investor that wants to gain a large return from investing with my expanding company? I’m currently earning revenue on the daily bases but, 1,500.-5,000. thousand dollar deals are pending and some have to go else wear because I have some but not all the equipment I need. So any leads on investors that might be interested?Answer: Good question. Be careful about Angel Investors, you want their money but make sure they don’t get control of your business. You will find out what I am referring to when you start interviewing them. In any event I have two websites for you to check out (inc.com and entrepreneur.com) both have invaluable information for you and will get you started on the right path. Good luck to you. Entrepreneurs will lead us out of the current recession and I hope you are successful in your venture.
Question: How can I find a startup partner, a business mentor or an angel investor for my startup website?
I live in hangzhou, China. I have developed a novel website. The website is under internal testing. Now I am preparing for the next stage of my startup website. I need to promote it and run it. I want to find a co-founder (or a startup partner), a business mentor or an angel investor. Any of them is ok. The problem is, how can I find such a person?Answer: Well raising capital can be one of the critical issues in running a business. The first stage is to create a details business plan, including costs and projected revenue. Now if you are doing business in China then you will have to find a chinese business partner, this could just be a person in name only, or a real business partner. Otherwise everything from that point will be the same.
Make a list of potential investors.
1. Venture capital companies
2. Possible client companies, ie, companies that would benefit from your business. Eg, an airline would benefit from a business that promotes Hangzhou tourism.
3. Companion businesses, companies that do something similar but not the same. Something that will mean you business enhances theirs.
4. Friends and family.
5. Private investors. Hire a conference room, put adverts in the business press. You do a presentation and so on.Question: NORMAL ANGEL INVESTOR CUT?
What is the normal percentage given to an angel investor on an investment under 100,000? How much and over what time span?Answer: Typically too small of an investment for an angel. Normally they get 1/2 or more of the company.
Question: How do I find angel investors to start a rec center/gym in my city?
It would be a great investment and a great opportunity. Its just I’m a 19 year old broke kid and wouldn’t look for any profit just a free membership.Answer: From my point of view, your chances of getting an angel investor to invest in your business is probably from 1% to 0 even if you have an excellent network You need to prove yourself first. Build up an excellent resume and get some experience to show those angels that you can manage a property without driving it downhill. Remember, it’s also their money. Try putting yourself in the point of view of an investor, would you be willing to lend your money to fund a business for a 19 year old kid whose already broke before he even got started and whose not looking to make a profit from the business?
Angel investors have very strict requirements. You have to prove yourself beyond doubt that you can give them their money back with an excellent return of investment before they’ll lend you money.
Question: What is an angel investor?
How does this scenario work? What do they get in return? How do I find one to help me? Are they allowed to help with a franchise startup?Answer: An angel investor is usually a wealthy individual who invests in promising businesses while they are in their “start up” phase. In return for their investment, they are usually given a pretty big equity stake (ownership) in the business, and can potentially make a bundle if they sell their shares or if the company eventually goes public. If you want to find one, it may help to get in touch with high-technology business groups. Where I live, the Chamber of Commerce has events where people starting businesses get an opportunity to pitch potential angel investors.
They are allowed to help with a franchise startup, but most will probably pass. Franchising will often have restrictive rules on how to properly conduct business. Most angel investors don’t like to be told how they should run a business, because they’re often successful entrepreneurs themselves, and they don’t take kindly to another agency telling them what they can or can’t do.
Question: Can someone explain the process of finding an angel investor? Is it easier to get funds from the stock market?
Is it easier to just put out the business in the stock market?Answer: Getting investment money to help start a new venture is far from easy. Getting it from an angel investor is extremely difficult (fewer than 4% of all companies that seek it manage to get it); getting it from a venture capital fund is nearly impossible (fewer than 0.4% of all companies that seek it manage to get it); and getting it from “the stock market” is completely out of the question (the requirements to be listed on NASDAQ, for example, are that you already have millions of dollars in revenue and hundreds of existing investors.)
By far the best way to find an angel investor is by talking to everyone you know, especially your lawyer, accountant or banker. They may be able to introduce you to people who they know make these kinds of investments. There are about a dozen books on angel fundraising for entrepreneurs, of highly varying quality, and many of them are out of date. The best one is “The Definitive Guide to Raising Money from Angels” by Bill Payne, and is available as a download from his website for $37. That’s probably a great place to start, to at least give you an overview of the process.
Question: Question Regarding Angel Investor yearly returns?
I live in Canada and I’m wondering what the type of yearly return the average angel investor would require in investing in such things such an apartment complex with greater than 40- units. My second question is, if I was looking for a loan around greater then 1.5 million from an angel investor for an apartment complex, how much interest would they charge me considering I have no assets?Answer: I’m afraid that (a) the average angel investor doesn’t invest in real estate at all; (b) the average angel investor invests only $25,000 in a given opportunity; (c) the average angel investor looks for an average of 10 to 30 TIMES return on the amount of money invested (that is; if they were to invest $100,000, they would seek to get back up to $3 million in five to seven years); and (d) the average angel investor wouldn’t consider investing in a deal in which the entrepreneur or promoter does not already have a significant amount of his or her own money already invested.
So, for all these reasons, it is highly, highly unlikely that you will be able to finance your apartment complex through angel investments. I’m afraid that’s not what you wanted to hear, but that is the truth.
The Canadian national association for angel investors is the National Angel Capital Organization. A quick overview about angel investing is available on Wikipedia. The official database of angel investment groups in Canada is Angelsoft.
Question: Does anyone knows where I can find Angel Investors that would invest in mobile telecom service?
Value Added Service to provide mobile Subscribers with Mobile Content, Interactive Services by SMS, etc.Answer: Google “Angel Investor”. There are hundreds of investment clubs and organizations that fund startups. Visit your local chapter of SCORE. Their members frequently have contacts to put you in touch with the right people. Other than network with others who are seeking startup funds. There are literally thousands of high net worth individuals who dabble in startups, but you have to know someone to find them.
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Guaranteed Venture Capital and Private Investor Funding Solutions
Think back to just a few short years ago, banks were on a lending spree, corporate lines of credit were being issued in record volume and companies were able to raise equity and debt capital with reasonable ease; then came the banking crash which unfortunately brought on an entirely new group of scams preyed on the innocent and naive small business owner which damaged the economy that much more.
Scams such as platform based funding, banking instrument collateralized lending, shelf corporation scams and on and on. Fortunately there is a light at the end of the tunnel thanks to some of the venture capital and private equity industry’s talented global finance executives who have decided enough is enough.
Now entrepreneurs are seeing professional collective funding efforts put forth by these seasoned finance gurus in the form of online membership databases which possess some of the best kept secrets in the global funding markets. Many of these databases include finance companies and methods that have never been available to the public and were used for decades by VC professionals who were able to pull off funding miracles on behalf of clients and in return made hefty commissions.
Now, with these unique contacts being placed in database form they are now available to everyone and anyone who needs capital. Imaging going to one website, joining for a modest fee and getting access to thousands upon thousands of private investors, angel investors, venture capital firms, hard money lenders, private equity firms, aggressive hedge fund lenders, Asian and European finance, factoring and other wonderful and easily comprehensible options to acquire capital.
A few of these membership databases have even taken the next step to give the business owners the elements to promote their business in a way that will help them pass due diligence with ease. Some venture capital executives got so fed up with having a client with a great business model, solid infrastructure, exceptional board of directors and even money in the bank but the deal would die when the company went into the due diligence and offer phase that they actually paid programmers to design a down-loadable application that offers the entrepreneur easy yet extremely powerful publicity with the strength of an actual high end PR firm all at the click of a button, it’s truly amazing.
The economy may not be what it used to be but it has forced the evolution of certain aspects of the financial industry to be more small business and entrepreneur friendly. There is massive funding out there for your company if you take the time to look.
Check out Angel Funding Project at http://www.angelfundingproject.com this is a massive online database put together and managed by some of the industry’s top venture capital executives. You can even download a free massive publicity application that will give you 1,000’s of free promotional links to drive traffic and pass due diligence by investors.
Venture Capital FAQ:
Question: What is the risk involved in finance situations, dealing with selling bonds, issuing stocks, venture capital, debt and equity financing?
Answer: If you are the issuer, the risks are that you end up having to give all the money back or end up in jail for securities fraud. All issuances of securities require registration or an exemption from registration. These are typically done via an exemption from registration, but it easy to blow an exemption. If you blow an exemption, you could end up having to give the money back to the investors. In connection with the offering, if you make a material misstatement or if you fail to make a statement which would make other material disclosures not misleading, you could be liable for securities fraud. That is not what you want. If you are doing such an offering, you should obtain competent securities counsel.
Question: What are the methods of financing your own business? I was thinking VC’s but I need details.
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?Answer: I’ve always financed things with the local small bank as they give the best terms. There are now some finance companies backed with wall street money but their terms will be in between bank and VC firms.
The answer to your second question is purely R.O.I. or RETURN ON INVESTMENT. If a VC firm lends $50,000 that returns $25,000 a year to them, why wouldn’t they do it? They realize there are plenty of entrepreneurs out there with great ideas and they want to piggy back on your success. These people have money, but they need your ideas, and you’ll also be doing the work. They are just lending money, and they can’t make much lending it out in the traditional fashion like banks. If you start the next Yahoo or Google they don’t care how much money you make as long as they make it right along with you.
Question: I have a sound business start up plan. But I don’t have fundings. How to arrange venture capitals funding?
I am not eligible for bank finance, because I don’t have margin money or property for mortgage.Answer: If you are in the US you can start the business now and build its credit before you do anything else. Then you will have funds available. Outside the US I would recommend finding a partner or silent partner to help fund the business.
Question: I am a business student and I need to understand the difference between Venture Capital Firms and Finance Companies.
And I can’t seem to find a simple worded explanation of the difference between them.Answer: Venture capital firms – loan you money but take a position of ownership in your company and the money they loan is senior debt. Finance company is just a provider of funds, there is no ownership interest.
Question: What can an MBA do for me?
I am doing Masters in Industrial and Management Systems Engineering. Interested in Finance and venture capital stuff.Answer: An MBA can get you in the door — you have to make the rest work. The one interesting statistic is that the greater majority of individuals that earn an MBA never work for themselves.
Question: Best way to borrow money – venture capitalism?
I have a small business that would do a lot better if there was some capital. The problem is credit. I own all of my equipment and my building as well as an accounts receivable but banks do not care. So, the question is – how to find a reliable venture capitalist. Also, what is the best agreements for venture capitalism investments? All I know is that I am a GREAT chiropractor as well as have a drug testing business that has the potential to go National but no financing.Answer: You have what you need. I am not sure why you want a venture capitalist. You said the problem is credit. If you own the building, and need credit, take out a equity line of credit on it.
Question: Where can one raise international finance to build a manufacturing factory in Africa?
Sourcing venture capital for start-ups is a tough one in Africa. Bankers offer short term credits at high interest rates and fully colaterized. This limits budding business people with excellent ideas.Answer: Speak to your country’s Executive Director at the World Bank, International Monetary Fund, or African Development Bank. There might be a Policy Framework or an Initiative that could help you start-up.
Question: Where to get venture capital funding for my website? What do I need to prepare?
Imagine you have 2 partners, and all you got now is a domain, and a potential website with good content and functionality. Now, you need funding, financing. You don’t even have a company at this point. None of your partners has finance background. We know nobody who works at a VC. What are the procedure in order to get VC funding? Would you open a company with your 2 partners first? Where to find the VC? What do they need to see? Will they invest into our company?Answer: It really depends on how much capital you need. My personal opinion, is that when starting a company you need a finance guy to sort the financial options. You could also use somebody with a law background to help you through the process of becoming a business.
Venture capitalists will never consider small investment opportunities. They usually go big with people who have a solid plan. It seems as if you just need an angel. A angel is a wealthy person who can provide you the money to start up your business. However, angels can be difficult to find, especially if you don’t know anybody that has extra cash to risk.
The best method if you can’t find an angel is going through small business loans. Check with your local chamber of commerce to find out about small business development in your area.
I would definitely recommend you write up a business plan. Nobody will take you seriously if you show up and are all talk.
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How to Find All the Angel Investors and Venture Capital Financing You’ll Ever Need!
The once definitive line that would separate hard money and private/angel financing has merged into a hybrid of sorts in the past few years. As the economy has taken a dive and structured private lending firms have felt the crunch we are finding many of these lending solutions closing its doors and re-opening as privately owned and managed funding options with an interest in both lending and seed investment.
Approval decisions that were once made by a group are not being made by an individual or duo with an eye toward optimal capitalization with both short term and long term agendas. As investors are, now more than ever, trying to get as much bang out of their buck, entrepreneurs are in the precarious position of accepting funding from virtually any and every enterprise that is making an offering. That said, it is more important now than ever to swing open your mind to the possibilities of mass exposure of your opportunity to the investment world.
The best way to do this is to simply put your business in constant and automated ‘introduction’ mode so that you can be found by the money-men. The best way to do this is to heavily investigate the venture capital industry for executives who have created offshoot programs that have deviated their process from the traditional path of simply approving or declining a transaction.
There are many VC professionals who want to capitalize off of the projects that their firm cannot accept due to underwriting criteria and industrial genre specialization so they are starting these small but well managed financial source databases where members can place their transaction directly in front of thousands upon thousands of angel investors, private investors, hard money lenders, venture capital firms, private equity firms and other alternative finance solutions.
These websites are now the hottest thing in the capital markets and will continue to grow because of the high success rate of individual executives and entrepreneurs who are able to find multiple streams of financing options with the click of a button.
If you are seeking Angel Investors, Private Investors, Institutional Investment Capital, Private Equity or any type of financing for your company check out Angel Funding Project at http://www.angelfundingproject.com they have great funding options, it’s run by people in the venture capital industry and there are tons of free downloads
Venture Capital Financing FAQ:
Question: Venture Capital?
I run a consulting firm specializing in helping large US and International contractors and construction owners in the construction industry in the areas of pre-construction and project management. The business is generating income but I want to expand the model and develop a utility management tool (software) that reflects my business philosophy and approach. In order to do this I need financing, but I don’t want to take a loan, I prefer equity based financing. Any ideas where to start and how to approach this?Answer: Unless you deal with “angel investors” (rich folks who like to invest in speculative deals and, as a rule, are passive investors), you will not likely get straight equity financing from anyone for an early-stage venture.
Most VCs, if they’re interested, will want to invest via secured debt, which is then convertible into preferred stock. Also attached to the money will be budgets, board seats, and oftentimes management control. Expect VCs to be actively involved in your business, from both a strategic and an operational viewpoint.
The days of straight equity financing for startups is – as a general rule – long gone, so I suggest you tweak your realistic expectations slightly if you are going to deal with professional VCs.
Question: Capital Venture Financing?
I would really appreciate a good response to this question. What are the current prospects of Venture Capital Financing?Answer: There are a lot of startups getting funded. One good resource is a web site called Discoverion. I think it is relatively new, but seem to capture a lot of useful venture information.
Question: How is venture capital financing accounted for in balance sheet?
I imagine if the financing is structured as a convertible loan, then the money is added as a liability. But if the investment is in return for common shares, how is the transaction recorded?Answer: DR – Cash; CR – Capital stock (at the par value); CR – Additional paid-in capital (at any excess to par value)
Question: Do you think I could get an entry level job with a Venture Capital Firm?
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?Answer: Yes, absolutely. Finance, economics, and accounting will all work. Depending upon your interest and abilities, other majors may have appeal. An MBA is a must though.
Keep in mind that connections and networking matter as much as or more than the degree and GPA. Use your time wisely at UVA. You have excellent opportunities to connect with and impress (1) alumnae, (2) professors, (3) administrative personnel, and (4) other students. Seek everything that interests you while in college and when something strikes you that (1) you like and (2) you are good at, milk the connections. The best opportunities (and jobs) will always come from your network — the better the network.
Question: I have a biz idea. Where do I get venture capital or an “angel” to finance it?
Please, don’t tell me to go to a bank, or a friend or a family member. What I need is an actual investor that likes the idea and wants to get it off the ground.Answer: The best route is to locate and research what Angel or VC funds are in your area. Further you need to determine what area your company falls under. You need the VC as much as they need you. So find a group that has resources and experience within your field. This is a mutually beneficial relationship. So during the pitch process you should not be the only side of the table selling themselves. Most VC firms are specialized, there are very few firms that are generalized, however the big names like KPBC or Warburg Pincus are so large they have their fingers in everything. You will need to write a business plan and determine how much money it will take to get you off the ground. If it will take less than 1 million then an Angel fund is the best route. More than one million then VC might take a look at you. Most VCs are looking for businesses that are in place and have some history of operation. The VC/PE world has changed drastically over the past years. Much tougher to get investments especially in the seed round.
Question: How to finance working capital for a service based start up company without going to venture funding?
Answer: Start-up funding is tough. Without sales and/or significant assets, banks are generally not interested. You might check with a local economic development agency to see if they have start-up loans. Otherwise, you are probably left to your resources through your own contacts (otherwise known as friends and family).
Question: How was venture capital created?
Answer: It was begun by people desiring to take a “risk” in a particular business with the idea of a high return of their investment money. If the business does well, they get a better return than “normal” markets and much better than savings instruments.
They are necessary for many small business to get up and running. If the business fails they get nothing back. But if it succeeds like Microsoft for example, when they sell their interest in the company, the sell it for many times what they invested.
Question: Strength and weakness of venture capital?
I’m doing a project on capital financing. Would like to know of the ways a firm can raise capital and the strength and weakness of each ways.Answer: 3 ways to raise capital:
1) Loans
2) Bootstrapping (self-financing strategy which is usually a combination of penny-pinching, pulling in friends & family to help etc. )
3) Venture capitalVenture Capital’s Weakness:
a) It’s an option limited to only businesses that VC firms find attractive. That cute boutique or auto-repair shop idea – won’t cut it. Only high-growth, high profit businesses need apply.
b) You could lose control of your enterprise – literally! (See C)
c) Goals for VC may be totally different than your goals (eg: going public vs staying private)Bootstrapping: My personal favorite but mainly limited it IP (Intellectual Property) or other talents the entrepreneur possesses.
Weakness: Most folks can’t afford a manufacturing run or any major capital expense with their spare nickels.Loans: Good because someone else is giving you the funds to launch something you could never afford.
Weaknesses: You have to a) get approved, b) pay them back and c) if you fail you still have to pay them back or go bankrupt. -
Do You Know What the Difference is Between Venture Capital, Private Equity, and Debt Capital?
Have you ever heard the terms “venture capital” or “private equity?” Well, if you are starting a business, you will need to know what kinds of investors you need to contact and the difference between venture capital, private equity, debt capital, and how investors are categorized. You will also need to know about what conditions different forms of capital is distributed to aspiring entrepreneurs.
Debt Capital
What is debt capital? Well, you can think of debt financing as a loan from a bank that you have to pay back with interest. In reality, that’s exactly what debt capital is. Many entrepreneurs often resort to getting some debt financing to start their business. Debt capital, depending on its size, can be obtained from your regular bank or if it is a large sum of money, you might have to go to a special bank known as an investment bank. As far as the investor who is giving you the debt capital is concerned, debt financing is a much lower risk investment compared to equity capital. This is because debt capital is funding that is lent to you, just like as if you are taking a loan out for a car or a mortgage on your home.
What is the interest rate on debt capital? In most cases, when in investor who invests debt capital to a budding company, he expects to make at least ten percent off of the sum that was invested into a given company. Furthermore, debt financing is usually given to those entrepreneurs, who the investor believes is most likely believes will pay the debt off in due time.
Equity Capital
Equity capital, on the other hand, is different because unlike debt capital; you do not need to pay anything back to the investor. Equity capital is funding that practically every company gains as its business grows. Equity is usually invested out of a particular fund and is classified as either private equity and venture capital.
Private Equity and Venture Capital
Basically, private equity is an equity fund that belongs to either privately owned institutions or private individuals. Usually private equity is invested by institutional investors, who are people that specialize in investing private equity from such institutions. Institutional investors usually work for a private equity or PE firm that manages private equity. Venture capital is also private equity but is managed slightly differently than private equity. Venture capital is actually private equity that is usually reserved for investments to companies that have the potential for high growth.
For those of you who need financing and do not want to have to worry about debts, you would like to have some kind of equity capital, be it private equity or venture capital. This funding is much better than debt capital, because unlike debt capital, you do not have to pay the investors back. Instead, with equity funding, an investor makes money when a company cashes out. This usually means that when a company is bought by another company or is prepared for public offering, that is when equity firms make their money. The other side of the coin, however, equity capital is a much more risky investment for the investor than debt financing, because with equity capital, an investor makes money only with a buyout, initiate public offering or IPO, or an exit strategy.
Investors
As mentioned before, there are different investors and investing institutions. Some investors are wealthy individuals who invest their own money to entrepreneurs whom they like, whereas others work for institutions, such as private equity or venture capital firms and invest money from their institutional funds.
Angel Investors
Angel investors are wealthy private individuals who invest their money into a given entrepreneur for whatever reason. Some angel investors invest in a particular company because they might like that particular entrepreneur or feels charitable and wants to share their own entrepreneurial experience with other budding entrepreneurs to get on their feet. Other angels might invest in a company because a particular company might fit into that angel investor’s values, ethics, or other personal interests. If you have a wealthy relative and he invests in your company simply because he wants to help out a member in his family, he is also an angel investor.
Venture Capitalists and Institutional Investors
Unlike angel investors, venture capitalists and institutional investors do not invest their own money. Institutional investors usually work for a private equity firm and invest equity from funds that are usually parts of a pension fund or other types of funds. Venture capitalists are investors who solely invest in venture capital and work for venture capital firms.
Where Does the Money Come From?
Well, that is a good question. In the case with most successful private equity and venture capital firms, the money for investments comes from venture funds that these firms have raised. When a venture capital or private equity firm is successful with their investments, they are able to raise new funds for future investments. Again, as mentioned before, equity investors cash in on their investments when a company is liquidated by either being bought out from another company, etc.
How Do You Contact Investors?
There are many ways you can contact investors, but any way you look at it, the task involves a lot of finger walking. There are directories available that can help you find investors easily. One of these databases is the VCgate Venture Capital Database, which can be found at http://www.vcgate.com.
Ivan Faucon writes about venture capital and entrepreneurs. He will also occasionally write about other business topics, such as consumer goods, jewelry, and internet marketing.
Venture Capital FAQ:Question: Where do you find venture capital for a business idea?
Answer: An attorney or business associate can be a good place to get a VC referral. You also can network among business executives in the field of your business. One thing to do is don’t try to get a referral to just any VC. You want one that is interested in your particular type of business. VC’s websites can be helpful at indicating their investment focus (and can show you if they already invested in a competitive venture) but they are often very broad when in reality they favor certain sectors that change over time with the business climate. Again, networking with executives that have received funding or pitched to a particular VC is the best way to gather insight if you don’t know any VCs to ask directly.
The National Venture Capital Association has a lot of information including a listing of members. Also, Entrepreneur magazine published a top 100 VC list. But remember, target those that are focused on your business segment.
Question: Does a person have to have good credit to obtain venture capital?
Or does it happen that the investor thinks the idea is a smoken one and invest on that account?Answer: Your personal credit is not a factor in getting venture capital. But, it is more than just the “idea” that gets them to invest. They are looking for the combination of a compelling product/technology and the technical and managerial talent to make it a reality. It is often more about the team and their ability to build a business around either a new technology, product(s) or a powerful business model that it is a specific idea.
Its important to understand that VCs primarily invest in great management teams and/or exceptional technologists. Generally, you need to have either several years of senior corporate experience in the right area for your venture or be a technical expert in the field of your products/business model. If one doesn’t have the background themselves, they need to recruit it into their team. Getting VC financing is very difficult in any environment but is particularly tough in the current economy.
Question: What is venture capital funding? Where does the money come from?
Answer: Venture capital funding is providing money to newly-formed companies that have not yet become successful. Venture capital investments are very risky because a large proportion of new businesses are unsuccessful. However, if the business does become successful, the venture capitalists will make a great deal of money because they came in at the beginning and generally purchased a substantial proportion of the new company.
Where does the money come from? Most of the money comes from wealthy investors, large pension funds and hedge funds. They hire people to look for promising start-up companies, and provide them with the initial capital to get them started.
Question: How could you get capital from an angel or VC? What would you say to these investors to attract them to your venture?
I want to secure $1 million to pay for an expansion of my online business. Is a bank loan possible?Answer: Possible but unusual. Banks have preferred to loan on “bricks and mortar” companies. You would pay 7% interest if you could get the loan. Payments of $6,500 a month. Every business owner in the world is sure that his “expanded business will be able to make enough to cover this new loan”…. because businessmen are optimists but also because they wanted the loan for a reason in the first place.
Venture Capitalists can be found in the Wall Street Journal. The problem is that they want 51% ownership of the company. And they want the right to fire you even though you used to own and run the company by yourself.
Angel investors are looking for good causes. Probably not your online business unless you could prove that you would be hiring hundreds of local people.Question: Where can I find investors or venture capital firms to invest in my social networking website?
Answer: If you’ve got the goods, research the vc firms to find those that invest in your product/business area. Then, network to get a referral if possible. It is much better to get a referral than mailing your plan in. VCs get hundreds of business plans & pitches and it is very hard to standout if you mail it in. Make sure you are really prepared with a well-thought presentation and be prepared to answer questions about your market and competition.
Question: If you ask a venture capitalist to finance your business, do you still have to pay back the money they loaned you? I’m assuming yes but just want to make sure.
Answer: VCs don’t generally lend, they buy partial ownership (also called equity or stock). However, it is not that simple. They get Preferred shares that have a liquidation preference. So, when the company is liquidated (sold or goes public), their investment gets paid back “off the top” in addition to getting their prorata share of the proceeds. In some situations after they are an investor, they will lend money to the company in what is called a “bridge loan”. These loans always include stock warrants. But, they only do this for existing investments.
Question: Why do the share prices of VCT’s seem to fluctuate less than other shares?
Many of the Venture Capital Trusts have share prices which don’t seem to move at all some days. I want to know why that is. Why don’t VCT share prices move around like other shares?Answer: Most “VCT”s are typically very, very low volume, their prices tend not to be as volatile as stocks in the short-term. People buy them to hold, not to trade.
Question: Are there any restrictions on foreign investments in the U.S.?
I am a start-up corporation seeking venture capital funds. I have had inquiries from foreign investors. Can I accept their money?Answer: Yes you can accept their money. And the IRS has nothing to do with it, they are tax collectors not foreign investment blockers. You will need to consult with a lawyer regarding the legalities though and the lawyer will recommend any changes in your corp structure that might be more beneficial or necessary in this case. You might end up forming a holding company incorporated in a state like Nevada which handles the incoming funds from your investors and then issues bonds to your current company. It will be a little complicated so buy some time with an accountant and an attorney who has a history in this niche.