What is Venture Capital Fund? Having your own business is one of the dreams and goal of the average person. Most of us would rather be their own boss than become someone else's employee. Unfortunately having your own business is not easy. Money is difficult to earn and more difficult to find, well unless you are already well off. Starting your own business may take a lot of thinking, guts and money. Fortunately new entrepreneurs have other options in finding funds for their business. A venture capital fund is a private equity from outside investors. People who provide these funds are called venture capitalists. These are a group of wealthy investors, financial institutions and investment banks that can gather investments. They invest in new businesses that are still starting in the industry. In return they get a portion of the equity and have a say in the company's decisions. Business ventures We often hear business ventures from rich people. Most investors who have enough money will embark on a limited partnership with a new company. This may sound good for aspiring entrepreneurs but it is not easy. Venture capitalists have now become more conscious and careful since the dotcom bust. They may not mind taking the risk but they have become more selective on where to invest their money. Venture capitalists are usually executives from a firm. These investment professionals are referred to as limited partners. These are a group of people who have access to large sums of money for capital. These funds usually come from private and state pension funds, foundations, financial endowments, investment companies and other institutions. Investors are usually grouped according to their interest. Most venture capitalists invest on starting companies. These companies are usually high-technology businesses such as electronics, computers, research and development. These funds usually last for ten years. The general partners or VCs receive a 2% management fee every year and require 20% of the net profits. They invest in more than one starting company for more returns in the long run. Venture capitalists are very selective and most of the time has strict requirements. Apart from that they also have a say in the company's decisions which may not be good for the company. Venture capitalists are known to invest a lot of money in a short amount of time. They may invest in advertising your company for magazines but are not exactly suited for your type of customers. Companies end up spending money at a faster rate before they can learn how to do it and earn positive returns in the process. For other entrepreneurs who have a hard time getting their business plans approved they may turn to angel investors. Angel investors are individuals who also have access to large amount of capital and are willing to invest money on highly speculative start up companies. These businesses usually don't have a solid proof for their technology or have a great potential for its product or services at the start. If you really need a venture capitalist fund make sure that you will pick a general partner that will work with you not just for the money. Venture capitalists can kick out the founders out of the way and bring in their trained CEOs. At the end of the day it is still a business that you can either work for or have it taken from you. Venture Capital -- Things that You Should Know "Venture capital" is a term that is often heard in business discussions. But more often than not, the more common belief is that this is rather complicated and difficult to understand, especially for those who are new in the game of business. For entrepreneurs and anyone who may be interested to get into business, it is important to understand what this is all about. Venture capitalists and firms are composed of people and firms that have pooled in their resources in order to invest in businesses, whether to start-up financing or for company expansion, for the purpose of earning profits within a short period of 3-7 years. The goal is to increase the company's value so as to yield more profit at its exit, which may be an initial public offering or what is commonly known as IPO. Other exits include an investor's buyout, a merger, or an acquisition. These firms concentrate on a certain field or area. It is therefore important that you know what these areas are. This is called investment criteria. If you have a specific area in mind which does not match that of the firm, there are many other firms that you can find. You just have to know where to look. The web is one source of venture capital firms. Make a search on the internet. Some sites are helpful enough to provide listings of these firms as well as other tips such as how to draft your proposal, how to raise venture capital, among others. When you've found the investor to match, it is then time to draft your proposal. It should be truthful, direct and thorough. You might want to ask a professional to check on your proposal before submitting it. Your proposal should leave a mark in the minds of the capitalists, since they have to go through tons of them. An estimate of 1 in every 400 proposals gets approved, so it is imperative that your proposal be impressive. When we talk of profit and earnings, we're not talking of a few thousand dollars in a year. These firms seek a return of up to five, even ten, times the initial investment, not to mention the management fees and other fees that they require. This explains why these firms tend to take the reins of the company. That is why it is important that you organize a solid management team that knows what they're doing and at the same time is able to handle the pressure from these capitalists. But while it helps if you appear to manage the company well, it is still important to listen and follow the strategies that these firms provide. Aside from being tried and tested policies, following their decisions will also benefit you in the long run should you need more capital. Venture capital is a wise investment alternative for both entrepreneurs and capitalists. You and the investment firm have a common goal, and that is to receive as much profit as possible after a short period of time. If this is not what you want or does not seem feasible to you, then there are other financing options that you can avail of. The important thing is to weigh all pros and cons before deciding anything. Venture Capital: The Basics A lot us have ideas, but the real challenge is making them a reality. There are a lot of opportunities in the business industry but the real challenge is making out. Earning money is as difficult as finding. No one really want to be a cubicle drone but without any capital most of us become regular employees. There are ways to start a business. If you have a great idea that has a big potential, there are ways to access funds for your business. Venture capital funds are one of the sources of seed capital for your start up company. Venture capitalists invest on start up companies with big potential and high growth. These are usually high technology companies that may lead returns in the long run. The downside of this is the venture capitalists get a share of your company and have say on the company's decisions. A person who has always dreamt of becoming their own business may find this a tad uncomfortable. The low down on Venture capital There are some venture capitalists that provide financial services to start up companies. These are usually companies that are entirely new, with mostly an idea and a business plan in their hands. Venture capitalists are willing to make risky investments on businesses that banks loans and capital markets are afraid to make. Companies that they invest in are usually high technology business such as computer and electronics. They are also interested in development and research. Venture capitalists are general partners that offer limited partnership to a company. These general partners are usually made up of executives from a financial firm. They have the ability to pool in a large amount of capital. These funds are usually taken from pension, foundations, insurance companies, financial endowments and financial institutions. This may seem a very good idea for a starting company but there is downside to this. In the business world nothing is free and general partners require 20% of the net profit of the company. They also need a 2% management fee every year. It's also not easy to attract venture capitalists. They often have strict requirements. They will no invest on companies that don't have proof of their technology. They may agree to meet up with you but that does not mean you're already in good terms. Most of time 999 business plans get rejected out of 1000. They can reject you for a lot of things that may even seem trivial at the moment. The hurdles don't stop there. General partners may help your company to jumpstart and expand. But they won't just let you make the decisions when they have invested a lot of money on your company. In some instances this may lead to problems especially when general partners only care about making money for themselves. They may invest in advertising but not in the right places for your customers. Some of them like to spend too much money and the sudden growth is too fast. Before you find yourself a venture capitalist make sure you are aware of their impact in your company. A venture capital fund may seem convenient at that time but you should always look ten steps ahead. Look for a general partner that will help your company grow not just add weight to their wallets. What the Definition of Venture Capital Won't Tell You Venture capital can be a rather complicated set-up for beginners in the business world. While there may be lots of resources available on the topic, these articles are sometimes too technical for the ordinary person. The definition of venture capital, in simple terms, is investment money provided by professional capitalists and venture capital firms to promising companies in the hope that it will make more money after a few years. Aside from its definition, here are some things to discuss about this subject. Venture fund has a relatively short lifespan. The goal, then, is to maximize profit within a short time span. These capitalists and investors have developed strategies and business plans that are "proven" to yield results, but this is not the case always. Remember that their aim is a return of investment in a short time and not a lifelong business. Aside from the profits that they seek to have, they also charge certain fees to pay their management staff. These fees are also taken out of the fund, making it run out sooner than expected. As a general rule, only 10% of the investments become successful. If that were the case, perhaps you'd wonder why these companies continue to operate. Since these firms have tons of money, they've somehow managed to branch out their investments in several companies. The key to success, then, is to make more good investments to offset the losses. So when everything is taken into consideration, they end up gaining more than they've invested. If you consider this option, be prepared to lose control over your company for a couple of years. Because these investors and firms have spent big bucks to help you put up your company, they also have a say on how things get done. We're talking of major stakes here, not just a couple of hundred dollars that you borrowed from a friend. They usually assign somebody to sit as members of the board to take part and know the decisions that you make as CEO of the company. At the same time, they report to the firm what they think of how you run things, which can be crucial should you need additional capital later on. Venture capital is one way to get into business with minimal capital. But remember that together with it are several requirements that you must comply with. These firms have developed plans which may have proved to be effective for past businesses. But while it may have achieved success at one instance, it is not a guarantee that the same will happen to your business. There is therefore the possibility of failure. While it may be difficult and the stakes are rather high, the gains that you may receive later are sure to outweigh the demands and difficulties that you face at present. Here's hoping that this article made you understand the definition of venture capital better. To have more information, it is best to seek help from a professional. Ask a financial expert on the pros and cons of venture capital and how it can be availed. He can also help prepare your business proposal to make it more attractive to capitalists and angel investors. There are a few websites which provide this type of service. 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 businessman. 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. If it has worked for others, then there is no reason why it shouldn't work for you too. Venture Capital -- Knowing Your Funding Options Entrepreneurs and business experts have defined venture capital as a financing style between a capitalist and entrepreneur with a common goal of a handsome return in a short period of time, maybe 3 to 5 years. But while there are several resources on the definition and characteristics of this topic, few have actually discussed the options that this kind of business set-up has. Before taking the plunge, know what these options are and how they can be applied to your current business plan. The funding option depends on the stage of the company's progress. Investment firms can invest from $50,000 up to $20 Million. If the company is still at its earliest stage, where a concept or invention is still to be developed or proved, the option is called seed financing. Here investment is spent on marketing and product development. Product ingenuity and market research are the areas being focused. When the company has already developed its product and marketing strategy but needs money for the actual production and initial marketing, the funding option is called start-up financing. This is the common option for new entrepreneurs and inventors. Here funds are spent for the production and initial marketing. Amounts can range from $50,000 to $1 Million. Sometimes a company already has its products and may have initially introduced them to the market, but receives little or no revenue at all. In this case, the entrepreneur may need financial assistance at this stage, called the first or early stage. The amount usually ranges from $500,000 up to $15 Million, depending on the extent of the changes that need to be made. It could be that the product needs to be revised or developed to make it more saleable, or it can be a mere repackaging or change in advertising strategy. The next option is called the second or later stage. Here the company has its products and may have received revenues, and has the potential of making it big in the near future, but for some reason has no funds at hand. It could be that there are some loans that need to be paid, or other financial schemes that need to be complied with. That is why venture capital firms invest from $2-15 Million to help the company. Some profitable companies want to expand, but does not want to put in more capital out of their own money. Their goal is not to keep the company for many years but for it to quickly grow in order to make an IPO within a few months, say 3-18 months. This option is called the third or mezzanine stage. Amounts range from $2 Million to $20 Million. Similarly, this next option needs an investment before an IPO, but the time frame is within 3-12 months. This is called the bridge. Investment is also between $2 Million to $20 Million. Remember that there is a specific option for each stage that your company has. The key is to know what options to use. Similarly, you must know where to find these venture capital firms. You must also develop a concise but comprehensive business proposal to present to them. Lastly, keep in mind that venture capital is not the end-all but just the beginning of more challenging things to come. What do Venture Capitalists Want? Venture capitalists come across a lot of companies that need funding everyday. Harsh as it may seem only 10% of the applicants will receive funding for their business. Each firm has their standards to uphold to be able to diversify their portfolio. To be able to stay ahead of the competition you must be able to communicate what your company is all about and at the same sell it by giving what they want. There are many private equity firms in the market but even those that are willing support small business what to know that you are worth what they are paying for. To be able to have a competitive edge against other applicants, ask yourself this: "what do venture capitalists want? By putting yourself in the shoes of an investor you will have an idea of what convinces them to provide funding for an emerging company. Apart from a topnotch and comprehensive business plan you also need to make a good impression to your investors. Search for information on private equity firms and venture capitalists that might be interested in your business. There is a wide selection of venture capitalists that invest in different types of business. What do investors want? Any investor would want to know who they are dealing with. You and your management team's background will be one of their focuses. A highly successful business is made up of a competent and ambitious management. After all, these are the people who will be spending their money. Your and your management should be able to cope up with the changes and demands of your business. You must understand the nature of your business very well, including the challenges you will face in the future. Investors want to know that the business they are going to invest in has an innovative idea with a great potential for growth. The target market of your business must be substantial and the same time rapidly growing. Your business must have a valuable product that has the potential for positive returns in the long run. Apart from that you must also provide them credible figures. This includes the changes that may occur when the economy shifts. They want to know how you will spend the money and how will they earn. As an investor, you want to be sure that you're investing in the right place. They want to know how you are going to use the funds provided for growth and positive returns. They want to know when the pay day is and how long it's going to take. You have to convince them that they will earn money as soon as possible. They also want to know how long you're going to need the funds and how much your business is going to need. These are things that you have to consider when presenting your business. In reality you are actually selling your product like a sale pitch. In normal cases there will always be more rejects than approvals. Even Angel investors have their own standards to keep. Your idea must not be just be brilliant but also profitable. In the end the investor will always want to know what they are going to get with a good exit strategy for them. The gift of gab along with good business plan is the key in getting your investor's attention. Sources of Venture Capital News Venture capital is one industry that has been around for the past 60 years or so. However, just like any industry, it continues to evolve and change. Much of its development can be attributed to the internet. Because of it, things are faster and easier. Any updates on venture capital and any venture capital news are readily available to the rest of the world through the internet. Aside from the internet, there are other sources of venture capital news. Old, traditional sources such as newspapers and magazines continue to provide the necessary updates and information that venture capitalists and entrepreneurs need. These are also good sources of legal updates in the field of venture capital. But any information that we can find in magazines and newspapers can also be found in the internet. Aside from the printed materials in circulation, they also operate websites where the articles are posted. Newsletters and emails are also sources of news. Subscription to a specific site sometimes includes subscription to their daily or weekly newsletters. Here service providers help entrepreneurs by providing them with useful articles and practical information. Contributions from business experts and capitalists can also be found in these newsletters. Discussion groups and forums are also good venues to post updates. Here you are able to exchange ideas and interact with fellow entrepreneurs like you. They can provide you with tips in the different aspects of venture capital, from raising venture capital to drafting of proposals to exit strategies. Articles on venture capital are not limited to business pages or sites. There are sites which are specifically dedicated to venture capital. These sites post news and provide video streaming as well. News articles are sometimes classified into more specific topics such as buyout news, industry news, fund news and transition news. This makes it easier for the reader to choose which articles to read. So if you are interested in buyouts only, for example, then you don't have to go through all articles to find the news that you want. The articles are also arranged by date, also to make it more accessible. Because the internet is worldwide in scope, these articles can therefore be accessed by practically everyone anywhere, in the same way that we can read news and updates in their countries. This goes to show that venture capital is a worldwide phenomenon. In the US alone, close to $29.9 Billion was used for venture capital investment in 2007. Also, capitalists are not looking at the US markets only but have considered funding companies and businesses in China, India and other developing countries in Asia. This is good news for these countries with vast manpower resources but limited funding. Through these articles, you become informed of the latest trends in VC. Last year, the trend was towards early stage investing. It was estimated that 35% of VC investments will go to seed and early stage deals. On the other hand, expansion-stage funding decreased. There are some really good websites which provide venture capital news and more. Aside from news, they also provide listings of venture capital firms and the companies that they helped fund. Find these websites and bookmark them. For young entrepreneurs, these sites are useful for them to know more about venture capital. Kinds of Venture Capital Jobs Venture capital is one fast-expanding field in the industry. Every year, there is an increase in the number of venture capital firms not only within the country but also in other parts of the world. Taken individually, these firms have likewise expanded by providing their services not only within the state or country but even overseas. With the rise of venture capital firms is the rise of venture capital jobs. There are only a few capitalists in a firm, so it is impossible for them to do everything. As they incorporate to make a firm, these capitalists are called partners, which may be of two types. One type is called a general partner or venture capitalist. These are the capitalists that we see and are known as such. They are executives who may have been former chief executives or senior executives in their previous companies. The investors are called limited partners. They may be individuals or institutions such as pension fund, foundations and other insurance companies. These limited partners may or may not be known by the public. These capitalists receive compensation in the form of annual management fee, which is 2% of invested capital, and carried interest, which is 20% of net profits. What other jobs are available in venture capital firms? It is a given that these jobs are business related, so an educational background in business or finance is necessary. There is therefore the need of accountants and financial analysts. These are the people who screen proposals and recommend approval of qualified ones. Some also work as researchers, focusing on the trends in a specific field or industry. There are also those who work on products and process development. In general, these employees are called associates. After working for a couple of years, they may be promoted to senior associate position, and so on. There are others who work as financial advisers and consultants. These are the people who work on a project basis. Their services are sought only when the need arises. They are usually people who are financial experts with respect to the industry that the firm hopes to work on. They also have an extensive background on the economic and financial status of the industry. The firm may also employ managers. These are the executives who would manage the affairs of a new company that the firm funded. Usually they form part of the management team or board of directors. These managers, together with the management team, run things around the company. They see to it that the company follows the procedure and policies that the firm has imposed, and give remarks and recommendation on how things can be improved. There is also what we call as entrepreneur-in-residence or venture partners. Their responsibility is in bringing in deals for the firm. They are employed for a specific temporary period, usually as the firm begins to operate. Capitalists are not the only people in a venture capital firm. There are still others working to make it an efficient, well-organized entity. So if you want to pursue a career in venture capital, there are many venture capital jobs available for you. You can search internet listings and classified ads for any vacancies. Now is the right time for you to join this booming industry. How and Where to Find Venture Capital Insurance Venture capital insurance is one topic which may seem complicated to most people. But once you try to understand how the system works, you'd soon discover that the topic is not that difficult to grasp. This explains why more and more new entrepreneurs have chosen this financing alternative than the more common ones like bank loans and mortgages. Through books and the internet, you will learn more about venture capital. Venture capital is provided by venture capital firms to start up or build small businesses. The idea is to provide funding and control the company operations in order for the company to grow within a couple of years, and for the firm to receive more than what it has invested. That is why most firms focus on high-return industries such as those related to technology and internet businesses. You can find some listings of venture capital firms in your area. Or it can be that someone you know also knows some people working in these firms. Referrals or recommendation from your friend will give you an edge for approval of your proposal. Do not submit your proposal to any firm available. That would only waste your time and energy. It is important that your proposal be in the same field as the investment criteria of the firm that you've chosen, so do some research beforehand. Also, this firm must also be compatible with your company's financial needs as well as growth strategies. There are ways to submit your proposal, the most common of which is through email. In doing so, make sure that you personalize the correspondence. Know where and to whom the email be sent. Nothing can be more distasteful than mass emails. Another way is by posting them in the internet. There are legitimate sites where you can post funding requests. Some capitalists find it more convenient to browse through these websites rather than receiving massive emails everyday. Avoid submitting them in trade shows. For one, you are required to pay before you can attend. Also, the capitalists that attend these shows are second-rate ones, not the type of businessmen which you would want to deal with. Since these industries have made extensive research in their field of choice, and since they have the necessary experience in managing related companies, it is therefore important that you draft your proposal well. Make a thorough research. Know the product that you wish to sell and the market that you wish to enter. Your proposal should be short yet complete. More importantly, it should be truthful. These investors can easily detect any false claims or mere hype in the proposal. There are some softwares available that will guide you through the drafting process. There are also some websites which provide for outlines that you can follow. If possible, you must seek help from a professional to check what you've drafted before submitting them. Finding venture capital insurance is one thing. Working with venture capital funds is another story. It takes a lot of hard work and perseverance in order for one to be successful in the business that you wish to establish. Lastly, there is no assurance of success or profit, not even for the venture capital firms. But of course, if you hit the jackpot, the rewards can also be high. How to Raise Venture Capital Funding For one reason or another, you've considered putting up your own business using venture capital. It could be that you don't have enough financial resources or you don't want to risk your own money. Perhaps you've heard of some successful entrepreneurs and wished to follow their footsteps. As you search for more information on this, you'll soon find that the first important aspect in venture capital is raising it. Here are some tips on how to raise venture capital funding. The first step is in understanding how these capitalists and investor firms think. Basically, their goal is the same as yours -- to make money. The only difference is they've spent most of their time in research -- studying which businesses have the potential of growing in a couple of years. That is why in the past few years, investments are geared towards technology and biotechnology fields, as they are the fields with highest potential. Sometimes they operate within a certain field or geographical area, so you must know the investment firms in your locality. Thus, there's the need for you to make a research on the firms within your state as well as their investment criteria. Know what they want and give it to them. If your business proposal is not in line with these businesses or does not meet their investment criteria, then make sure that your proposal is impressive enough to catch their eye. This brings us to the next step -- preparation of your business proposal. Since these firms receive tons of proposals, it is important your proposal be brief but complete. The opportunity must be well defined and clearly explained. This is only possible if you did your homework well. Know the market that you wish to penetrate as well as your competitors and their strategies. Make sure to ask help from experts and professionals on how to draft these proposals. While it may be an added cost, the chances of your proposal getting approved will also greatly increase if you seek help. This is very important specially if you have no business background. You may know your business well and have made a thorough research, but you haven't translated it into a clear, reasonable proposal. Have someone check your draft before submitting it. Lastly, check your proposal for any errors in typo and grammar. The figures must also be accurate. After you've submitted your proposal and have caught the firm's attention, it is time to put up a management team. Keep in mind that with venture capital, you lose some degree of control over the company. These investment firms would also field in some of its people to sit in the board or be a part of the management team. It is therefore important that your management team be strong enough to handle the pressures from the investment firm. If you're thinking of expanding your existing business or putting up a new one, venture capital funding is a good alternative. But before deciding on it, know the options. Read business books and articles on the topic. Then study your business plan and see if venture capital is applicable. If you think that this is the only way to go, then go for it. Just make sure that you take all precautionary measures and know all alternative strategies to your business plan.
Venture Capital Fund: A Viable Risk? Venture capital fund is considered one of the financing options of a business. A venture capital firm will give a business its much needed funds and first class resources to become an industry player. Seeking out venture capitalists may play a huge role for a company who needs to needs rapid growth and success. Unfortunately even though they may provide a good opportunity there are also disadvantages in acquiring venture capital fund. Finding potential investors have side effects before and after they approve your business plan. The competition is very stiff. Investors do not care about an entrepreneur's hopes and dreams. They care about financial projections and earning more money than they invested in a short period of time. In exchange for the money your need; the investors will bite a chunk out of your business and control. The grass isn't entirely greener on the other side. A private equity firm may give you the cash that you need to boost up your business but nothing is free. After all, this is business and money dictates everything. Venture capitalists already have an effect on your business at the start of your application. Large and established venture capital firms only approve less than 10% of the business plans they come across. Established businesses with a good track record and posses a huge potential are the only ones who have the chance of getting approved. Private equity firms also invest in specific industries, technologies and geographical area. There are different types of firms but large ones are interested in high technology businesses. You must find a firm that will suit your business and more importantly a product innovative enough to cause interest. Raising equity to finance your business is time consuming, demanding and costly. Investors will also probe you and your business. During your presentation they will be very critical of your historical financial data, future projections and management team. They will also evaluate your business' investment potential. Once they have decided to invest in your business, they will present their term sheet. This will contain the investment deal including the terms and conditions of the investor. Negotiations will follow between you and the venture capital firm. The most important aspect in this negotiation is the valuation of the business. This will determine the amount of equity that you will give in exchange for the fund. Investors will require 30% to 40% of equity from your business. This will enable them to exercise their influence and gain a say in your company's decisions. Due to this the ownership of the company will be diluted. You also have to provide time to be able to provide information to the investors who will be monitoring your company. You also have to adhere to legal and regulatory issues. Investors aim to earn money three to five times more than they invested in five years. They will accomplish this by selling their equity or to public stock markets. All in all using venture capital as a financial option comes with risks. If you are an entrepreneur who doesn't mind sacrificing a chunk of your business for rapid success then this option suits you. Be reminded however that securing a venture capital is an arduous process even after you have attained it. Be ready for some additional players in the table. Venture Capital Cycle -- How Does it Go? Venture capital is something that most aspiring entrepreneurs are eyeing. This is because the deal is rather simple -- you submit the proposal, firms accept the deal and provide funds to finance it. Compared to bank loans which you need to repay, venture capital is paid by the firms and investors. But while it may seem easy, the process may be a little complicated as you go along. Here is a simple discussion on venture capital cycle and how it works. The cycle is basically made up of three stages: raising of funds, investment of such funds, and exit. Before you can close a venture capital deal, you must first find a venture capital firm. Research on the firms available, and see which industries they are most inclined to. Your proposal must fit their investment criteria, otherwise, everything would just be a waste of time. The usual fields are biotech and greentech. If these are the types of businesses that you wish to enter into, then you are in luck. The next step is to develop a business proposal. This you will submit to the firm. It is therefore important that the proposal is short but complete and well-researched. At this stage you may seek help from professionals and consultants. Make sure that there are no errors in it. When it is your time to present, be sure to have studied your proposal and the industry where it belongs in order for you to be able to answer questions that capitalists and managers may ask. Granting that you've submitted a good proposal and was given the 1:400 shot at landing a deal, you have now completed the first stage of the cycle. The next stage is in the investment of such funds. During presentation, you will be required to present a management team. It is important that this team be composed of competent people who are knowledgeable of the field or industry that you propose to enter. Aside from your own management team, the firm shall appoint managers to help, even impose, policies and decisions in the company. Since these firms have high stakes in the company's success, it is only logical that they interfere with the decision-making process and in effect, have more control over the company than its owner. During exit, the funds are liquidated and returned to the investors. This usually happens within 3-5 years, even sooner, if the return of investment is very high. An exit may take different forms, such as merger and acquisition, buyout and initial public offering or IPO. While others may have succeeded in earning more than 500% of their initial investment, there are likewise others who failed. Also, a big chunk of the funds goes to the expenses of the firm, such as management fees, consultation fees, and other fees. Understanding venture capital cycle will make you better, more efficient entrepreneurs. That is why it is important to do some research, read articles, even enroll in a venture capital course. Furthermore, investigate on the trends of the industry that you want to enter into. No entrepreneur became successful just by mere luck or chance. Any entrepreneur will tell you that you need to study and understand what you're doing in order for you to be successful. The Advantages of Taking Venture Capital Courses When one speaks of venture capital, what usually comes to mind is its difficulty. Most people think that in order to be a capitalist, you need to be a graduate of some master's degree. Surprisingly, you don't need to do so. There are venture capital courses that you can take in order for you to become a good capitalist or entrepreneur, if you're looking at the other side of the fence. Now you may ask what good shall this give you, when there are tons of resources that you can find if you want to learn about venture capital. The internet, for one, has hundreds of websites that "teach" you, not to mention the online courses that other sites offer. Also, enrolling in these courses would entail added costs and expenses. While there may be disadvantages, the benefits that the courses provide are sure to outweigh them. Here are some of them. One advantage that these courses give is the opportunity to ask questions directly to the instructor. If you are not taking these classes but are merely reading books or articles about it, you may have questions that need to be answered for you to understand better. Taking the course will give you that opportunity. Another advantage of taking this course is the practical knowledge that venture capitalists may impart. Some of the instructors are capitalists themselves, so there is the opportunity of hearing their experiences first hand. This will help the student understand the key issues as well as appreciate the policies and decisions made by companies along the way. Sitting in a class with people having the same interest as yours is also an effective way to learn better. You learn more as you interact with other people than when you sit alone at home, reading or browsing through a website. You also learn from their experiences as they share them to you. Also, these courses provide handouts and suggested readings that prove to be helpful to budding entrepreneurs. Since the instructors are the ones who compiled and made these notes, then you are assured that these handouts will provide useful and effective information on the subject. Also, with the many books available on the topic, it is impossible for you to read all of them in a short span of time. With the suggested books and readings, you only get to read the best ones available. Since these courses require you to take exams or to submit reports and case write-ups, then you are able to evaluate your own learning. Here you are able to determine the areas that you need to work on, and those that you are good at. This is not possible if you are not enrolled in a course. If you are seriously considering a career or to put up a company using venture capital, then it is best to formally enroll in a course. If the college or university in your locality offers MBA or Law courses, chances are, they also offer venture capital courses. You can browse through their websites or visit them to inquire. Taking this course is just the first step towards developing the entrepreneur or capitalist in you. The next step is applying what you've learned in real life. After all, that's where the real battle is. What is a Venture Capital Course? Venture capital is one field that's making waves for almost two decades now. What most of us don't know is that the system has been around for over 60 years. The promise of profit within a few years, not to mention the enticing ads and success stories posted in the internet, is something that lures aspiring entrepreneurs into it. While there may be resources readily available, others still opt to take a venture capital course. There are many kinds of venture capital courses. Schools within the US and in far countries like the UK and India offer them. Course titles and subjects vary, although their outlines are similar and there are common subjects. Aside from those offered in schools, there are some courses that may be taken online or through correspondence. With the invention of the internet, these online courses have evolved and developed into useful learning curriculums. Now you may reach your professor through email, and he may send his assignments and exams in the same manner. Or you can log in a specific website and see new postings from your instructor. Most of these courses are short-termed ones, ranging from three days up to a week. Others may last for a few months, but these courses are coupled with other topics such as real estate and private equity investment. Aside from the main subjects offered, some courses recommend and suggest electives that may be taken together with the course subjects. There are other courses which require you to take some subjects before you can enroll in the course. These pre-requisite subjects are usually related to math, statistics and corporate finance. Fees and other expenses may vary depending on the school and extent of handouts and notes that they provide. In the same way, course requirements also differ among these schools. Others have a classroom course type, complete with lectures, case analysis and discussion, while others have a one-on-one approach. Some courses require submission of reports and write-ups, aside from the exams that you need to take. The typical course starts with the introduction of venture capital, origin and development of the industry, and its types. It also includes the drafting of business plans and how to assess them. Aside from these topics, there shall also be discussions on risk analysis, returns, management team assessment and exit planning. Some courses offer topics on private equity investment, a subject that is closely related to venture capital. From sourcing to realizing value during the exit stage, these lessons are helpful to better understand its relation to venture capital. Aside from these, they also include tips on analyzing deals, negotiating and pricing equity stocks, and creating value. Another topic that is offered together with venture capital is real estate. Taking a venture capital course is an effective way of learning more about the subject. If you are keen on putting up your own company through venture capital, or if you want to become a capitalist yourself, then taking a course is the best way for you to go. Know what there is to know while taking the course. But remember that learning does not stop as the course ends. As you apply what you've learned, you continue to enrich yourself with real-life lessons that the course does not provide. 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. Do not want 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. 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. State 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. Choosing the Best Venture Capital Consultant Finding a venture capital firm can be a taxing job. Imagine having to go through the profiles of these firms to determine if your proposed company fits their investment criteria, and then having to send your proposal to each of them. This will definitely consume your time and energy, as well as financial resources, without guarantee of favorable results. This explains the need for venture capital consultants. What exactly do these consultants do? Basically their function is to find a venture capital firm to fund a start up company. But before this, he must know the kind of business that you want to put up. In this way, he will immediately know which firms to contact once you've given him your proposal. This is done by reading the business proposal. You may have written the proposal yourself, or he may draft the proposal for you, for a certain fee. It is advised though that prior to contacting a consultant, your business plan must already be finished. Aside from the added expense, it is important that you know beforehand what you really want so that the consultant can have something to work on. On the other hand, if the consultant makes the proposal for you, then you are assured that the proposal is attractive, brief and complete, increasing the chances for it to be approved. During this stage, he must take time to know what you want. He must continue to ask questions not only about financing options but also with other aspects such as system of management and exit planning. A good consultant is someone knowledgeable of the different investment criteria as well as management styles and policies of these venture capital firms. Next, he must know the exact type of venture capital firm that you want to work with. You may want to work with a firm, an angel investor, or investment banker. He must also be able to give suggestions as to which type of firm would best suit the company or business that you wish to put up. Some online consultancy firms provide all the necessary help that you will need. They can provide you with checklists, reports and sample business proposals. More importantly, they will help you in your funding application by posting them in their website. The downside of hiring a consultant is, obviously, the cost. Consultancy firms can charge up to $2,500 for mere consultancy services. Aside from this, there may be other fees that they will charge such as retainer fees and other direct expenses. Some of these companies charge between $250-350 an hour. Be wary of consultants who tend to give you sweet, enticing words. Chances are, they're all hype and can't deliver. Unfortunately, because of the increase of popularity of venture capital financing, many of them have abounded. So take extra care in choosing your consultant. Do some investigation. Instead of choosing freelancing consultants, maybe you can choose one who is employed by a legitimate consultancy firm. A good venture capital consultant saves your time, money and energy. Choose the best one that you can find. You can find some of the through the internet or by word of mouth. Some entrepreneurs can give you names of consultants or consultancy firms that offer this type of service. What You Need to Apply for a Venture Capital Many of us know that we need money to invest in a business. Most of us also know that we have the option to seek for outside investors or venture capitalists. The problem is each one of us has an idea and would like to turn into reality. But for someone who is not well versed in the streets of business we don't know how to go about it. When you are applying for a venture capital fund or grant you need a comprehensive business plan. Applying and convincing investors are no easy feat. They are going invest money in your business so it's natural that they want to be sure that it will profit them in the long run. Screening can be very tough and competitive. Venture capitalists can reject you because of a million things, and don't be surprised that some of them may even be trivial. What you need along with an application There are five documents that you need to present to the investors along with your application form. These documents will serve as a representation and summary of your company. Your sales pitch may play a role in your overall presentation but the gift of gab is not enough. Investors want to see that you are worth their time and money in print. First is the executive summary. It contains your business' investment opportunity. It's just one page and available for the public. It is made in a way that anyone can read and understand it. The second is the Investor ready business plan. This is different from the bank ready business plan because it contains the marketing strategy of your business for the investors. This will show the movement of the company along with the investor's funds and positive returns. In this document investors only want to know two things: how will they earn back their money and their mitigation risk. This document is used to sell your company and presents to the investors your company's worth. The pitch: the presentation of your business with charts. This usually takes about 8-10 minutes and 12-15 charts. This is quite the same with a sales pitch. The fourth document that you are going to need is the Private Placement Memorandum. This document is used to protect the interest of both the investor and your business. If you don't have this legal document, the investors can sue your business for a refund if you do not produce the results you stated. Investors only read this document if they have decided to invest in your business. The fifth and the most important document is the operating plan. This is the blue print of your company that serves as the integral part of the business plan. It contains a comprehensive overview of your company. The operating plan contains the organizational charts, production and marketing strategy. Investors want to know that you have a structured plan as your company grows. It also tells your team what is expected of them as the company progresses. It also contains the changes in your strategy in a competitive market. Screening of emerging businesses by investors will be quick. In normal circumstances, private equity firms reject a large percent of applicants. In most cases they are only required to approve certain of number of applicants. Make sure that you have a good business plan to back you up and little gift of gab to convince your investors. Venture Capital and Grants -- Is It Right For Your Business? You've heard of some companies which were put up through venture capital and grants, and wondered if you, too, can establish your own. There are many venture capital firms that you can find through the internet, and still some that you or your friend knows. You did your research, made the best business proposal and are about to send them out. While it may seem the perfect financing scheme for you, what you and most people don't know is, it does not apply to all types of businesses. For one, these firms have a certain investment criteria, and if your proposed business does not fall within their specifications, then chances are your proposal will not be approved. Because of the many proposals that they receive, and with the limited slots that they provide, screening of these proposals is rather strict. There is therefore the need for you to draft a stand-out business proposal because of the stiff competition. Or you would need the referral of a friend whom the firm trusts. These firms concentrate on specific fields, so if it does not fall under these industries, then VC is not right for your business. These are technology-related industries, those which can give a high yield of profits after a short period of time. If you want to invest in industries like real estate or a restaurant business, then VC is not for you. If you're thinking of a long-term investment, or if you make the mistake of falling in love with a company too soon, then forget about VC. Also, if you are the type of person who wants to be in control always, then VC is definitely not for you. Once you enter into a venture capital scheme, you must be ready to give up the reins to the capitalists. They call the shots. They provide the directions and strategies necessary to carry out the business. They perform management decisions. If you want to do things your way, then perhaps consider other funding sources at this point. If venture capital is not for you, then there are other funding sources available. There is what is called as angel investors, or individuals who also provide funds for start-up companies. This is ideal if the capital that you require is not that big. You can also secure bank loans. However, the disadvantage of this type of funding source is the liability of repaying the loan regardless of your success or failure. There are also investment programs provided by the government such as the Small Business Investment Company Program. There are also other federal, state or local programs that you can enroll in. Of course, there are the ever-reliable family and friends who can lend you some money for capital. Venture capital and grants is not something that is impossible to attract. As long as you know how and where to find these financing firms, then there is the chance for you to raise venture capital. But before you start working on the financial aspect of the company that you wish to establish, you must first consider if venture capital is applicable. You need to look into other sources and not set your mind on venture capital. Otherwise, all your efforts will be put to waste. Making a Difference with Non-Profit Venture Capital Most of us don't really care much about making a difference. Most of us didn't even care about pollution and global warming until gas prices soared, forcing people to swap their SUVs to hybrid vehicles. Money makes the world go round they say, and even simple dreams get tainted by commercialism. Artists don't just play music but also convince their fans to buy overpriced merchandise just because it has the name of their idol printed on it. Fortunately it has become more and more obvious to the people that there are others who barely manage to get by. Non-profit organizations also seek venture capital to help others. Most of these are non-profit organizations who aim to help and make a difference in their community. Nowadays fraudulent schemes abound. This is one of the reasons why venture capitalists don't invest their money in these type organizations, besides the fact that they won't earn anything in return. Non profit organizations for the benefit of other people Non profit organizations do exist to help other start up businesses. A non profit organization called Alliance of Angels provides funds for new businesses. It an organization composed of Angel investors. There are also other non profit organizations that exist like them. Unfortunately, like Alliance of Angels, screening can be strict and very competitive. They also create non profit businesses that are involved in a movement called a social enterprise. These social enterprises, such as Goodwill Industries and Salvation Army, provide job opportunities for disadvantaged individuals. This includes individuals with mental and physical disabilities, don't have any work experience and lack education. Other non profit businesses also hire low income high school students and drug abusers. The latest development today is that non profit businesses don't just provide job opportunities. Organization such as Food from the Hood, Pueblo Nuevo Development and Chrysalis are an example of this. They create programs that train and develop a disadvantaged individual's skill to be able to find a regular job with a living wage. These businesses are able to sustain themselves, which in turn enable them expand and help more people. Others provide capital for businesses that are focused on making a difference. The Social Venture Capital Organization provides seed capital and grants to businesses that have ideas valuable to their community. They are looking for businesses that are geared towards addressing key social concerns such as poverty, hunger, malnutrition, hate crimes and crime prevention. They provide counseling and management support for non profit businesses to be able to turn their ideas to reality. In this money driven world it is a relief that organizations like these exist that is willing to make a difference in their community. Organizations like these encourage non profit businesses to start and grow. There are also firms that encourage profit oriented businesses that bring make an impact in their community. The downside is they may encourage economic development in their community but not to the benefit of the people who live in it that also need help. If you have non profit business seeking venture capital funds you can approach this type of organization. Although they may not be as many as traditional private equity firms they still do exist. This time they are willing to invest in a company not out of pure gain. Kinds of Venture Capital Firms and What They Do With the growing popularity of venture capital comes the increase in venture capital firms. Because of the possibility of striking gold through venture capital, there are now more capitalists than there were decades ago. The common impression of these firms is that they merely provide for the finances or seed money for a start up company. Aside from providing funds, what other things do they do? First let us discuss the kinds of venture capital firms. The most common ones are private independent firms. Usually operating under a limited partnership, these firms are not subsidiaries nor do they have affiliations with other institutions. Banks and other financial institutions, working through their affiliates or subsidiaries, constitute another kind. There is also what we call as direct investors, or those who does the investment in behalf of industrial or non-financial corporations. Still another group is what we call angel investors, or wealthy individuals who also help provide venture capital. Venture capitalists make up these firms. There is what we call as generalists, or those who invest in different industries, locations, or stages in a company's life. Those who invest in a particular industry or location only are called specialists. Venture capitalists act as partners as they help put up the company. Because they are more knowledgeable in the specific field of business than the new entrepreneur, these capitalists help provide the policies as well as strategy. More often than not, company management has no choice but to follow them. The first important job for the firm is the selection of business proposals. This constitutes a large part of their job. With the many proposals sent before them, it is hard to read and analyze thoroughly all of them. There is therefore the need for research as to which industries and fields are most feasible. Once these industries have been identified, it would then be easier for the capitalists to analyze the proposals, as they are able to weed out the bad proposals or those which they are not inclined on doing. Since they have a say in the management of the company, they also exercise management decisions such as the hiring of management team, purchase of real estate, entering into an agreement with other companies, and many others. They also assist in other aspects such as product development and marketing. Part of the firm's job is to find alternative sources of capital. Since these firms belong to a certain network, it is not surprising that they know other firms and capitalists who may later be of help in terms of funding. The capitalists are not the only sources of funds for the firm. Some of the money may come from other institutions such as pension funds, endowment funds, foundations, angel investors and other corporations. That is why there may be instances where additional funding is from other sources. Venture capital firms are not mere financiers or investors. As partners of the entrepreneur, they contribute in any way possible for the success of the company. The key then is in choosing the right firm for the type of business that you would want to enter into. Just like in entering into a partnership, you wouldn't want to be partners with someone whom you don't like to work with. Venture Capital Firms in New York: Chase Your Dreams Starting a business is not as easy as it looks. If you have the money support your ideas you can start up your businesses. Unfortunately not all of us have enough money. There are times that even bank loans refuse to provide funds for your business. Fortunately there are venture capital firms are willing to raise the stakes and take the risk. Relying on outside investors is natural for business, even established seek venture capital funds for added capital. Finding a private equity firm is not difficult, especially if you're in New York. In the city that never sleeps, money continues to roll even though the CEO is asleep. JP Morgan Chase and Co. is one of the leading venture capital films in New York. It's a firm that has $1.6 trillion in assets and operates in 50 countries. Its headquarters is located in New York wile its commercial banking headquarters is in Chicago. New York is considered one of the hubs of business so it's natural that you will find the leading private equity firms there. Most venture capitalists are interested in high technology but JP Morgan and Chase leans toward a sector that they experienced with: banking and financial services. Chase and Co. The company has a long history dated back to 1799. Six companies merged in 2004 to form JP Morgan Chase and Co. These companies are Chase Manhattan, JP Morgan, Chemical Banking Corp., Bank One, National Bank of Detroit, First Chicago and Manufacturers Hanover. JP Morgan portfolio includes businesses in investment and Private banking, private client and worldwide security services, asset management and one equity partners. Chase invests in consumer and banking businesses in the United States. This includes credit cards, home finance and equity loans, auto finance, small business, insurance and education finance. Their commercial banking business focuses on middle market, equipment leasing, corporate business credit, and commercial real estate. Apart from engaging in large markets they also invest in communities to strengthen economic development. The Community Development Group provides capital, access to its resources and network. They serve low to moderate income communities, individuals and families, and small businesses owned by minority and women. They help these communities by providing services through credit, banking, technical assistance, mortgages and advisory services. They also provide funds for non profit businesses located in these communities. The best part about the firms is that they are willing to invest in a diversity of partners. They are operating in more than 50 countries which mean they don't just focus in positive returns but also a diverse investment portfolio for the benefit of its clients. The firm is a big company that caters a wide demographic. They are focused not just on big start up companies but also small ones. Naturally, getting your business plan approved may not be easy. The firm poses a promise but that is not a guarantee that your business will be approved with a check. It's best to select a firm that matches the objectives and goals of your company. There are many venture capital firms in New York and JP Morgan is one of them. As a leading global financial firm these gives them a cut above the rest. Seeking out outside investors for seed or growth capital is going to be essential for any business.
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