Private Equity and Venture Capital in Latin America (part 7)
Panel discussion centered on private equity and venture capital in Latin America. The panel is moderated by Juan Pablo Capello of Greenberg Traurig and featu…
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Hypo Venture Capital Asset Allocation: A Sound Investment Strategy Part 2
Here at Hypo Venture Capital we are committed to offering our clients access to the latest and broadest range of financial services and products on the market. We know that choosing the right strategy, the right investment and the right product is no easy task in this day and age! Whether its advice, investments or financial planning we are here to answer all your questions and facilitate all your financial needs.
In today’s complex financial markets, you have an impressive array of investment vehicles from which to select. Each investment also carries some risks, making it important to choose wisely if you are selecting just one.
The good news is that there’s no rule that says you must stick with only one type of investment. In fact, you can potentially lower your investment risk and increase your chances of meeting your investment goals by practicing “asset allocation.”
Asset Allocation Can Work
For instance, at age 25 you may decide to invest with the goal of retiring in comfort within 40 years. Most likely, your investment goal is to achieve as much growth as possible growth that will outpace inflation substantially. In aiming to reach this goal, you may allocate 70% of your assets into aggressive growth stocks, 20% into bonds, and 10% into money market instruments. You have years to ride out the wide fluctuations that come with stocks, but at the same time, you potentially lower your risk with your bond and money market holdings.
Because your goals and circumstances are unique, you may want to talk with an investment advisor who can help you tailor an allocation strategy for your needs. Generally, your asset allocation will change as you reach different stages in your life, as your investment goals also change along with these shifts in lifestyle.
If you have been investing aggressively for retirement for more than 20 years and are now less than 10 years from retiring, protecting what your investment may have earned from market ups and downs may become more important. In this case you may want to gradually shift some of your stock allocation into your bond and money market holdings. Keep in mind, however, that many financial experts recommend that stocks be considered for every portfolio to maintain growth potential.
A Simple Process, Some Dramatic Potential Results
Asset allocation is a simple concept, yet vital to long-term investment success. In fact, a landmark study cited in Financial Analysts Journal shows that about 90% of the variability of average total returns earned by balanced mutual funds and pension plans over time was the result of asset allocation policy.3 For many individual investors, the asset allocation decision amounts to choosing what types of mutual funds to invest in and the amount to invest in each type of fund. Others may want to add individual securities to this mix after exploring their investment options.
Regardless of the asset allocation strategy you choose and the investments you select, keep in mind that a well-crafted plan of action over the long term can help you weather all sorts of changing market conditions as you aim to meet your investment goal(s).
Points to Remember
1.Asset allocation is the way in which you spread your investment portfolio among different asset classes, such as stocks and stock mutual funds, bonds, and bond mutual funds.
2.When prices of different types of assets do not move in tandem, combining these investments in a portfolio can help reduce the variability of returns, commonly referred to as “market risk.”
3.Mutual funds are pools of securities, usually offering diversification within a single asset class. Some mutual funds may include several asset classes.
4.The asset allocation that is right for you depends on your investment time frame, goals, and tolerance for risk.
5.As your investment time frame and goals change, so might your asset allocation. Many financial experts suggest reevaluating your asset allocation periodically or whenever you experience a milestone event in your life such as marriage, the birth of a child, or retirement.
Want to know more?
Hypo Venture Capital is an independent investment advisory firm which focuses on global equities and options markets. Our analytical tools, screening techniques, rigorous research methods and committed staff provide solid information to help our clients make the best possible investment decisions. All views, comments, statements and opinions are of the authors. For more information go to www.hypovc.com
Hypo Venture Capital is an independent investment advisory firm which focuses on global equities and options markets. Our analytical tools, screening techniques, rigorous research methods and committed staff provide solid information to help our clients make the best possible investment decisions. All views, comments, statements and opinions are of the authors. For more information go to www.hypovc.com
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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.
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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.