Investment in Early-Stage Venture Capital – Phil Black of True Ventures
SuperInvestor U.S. – http://www.informaglobalevents.com/ytsiusvidep Phil Black (Co-Founder, True Ventures) interviewed by Mark O’Hare (CEO, Preqin) at SuperI…
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.
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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.
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 startup 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.
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.
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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.
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