The Most overlooked Principle to getting Venture capital

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The Most overlooked Principle to getting Venture capital

By Abe Cherian

Copyright © 2005





Venture capital is a possible source of funding for new

relatively unproven enterprises that appear to have

promising futures. However, such money is often hard to

come by.



Be realistic in your quest for venture capital. Venture

capital firms expect a business to be able to return their

investment not only with interest, but with a large profit.

Many venture capital firms are affiliated with banks,

insurance companies, other financial institutions and large

corporations.



Some are owned by individuals or private groups of

investors and a few are publicly held. Once you accept

venture capital, you have relinquished some of your

autonomy and accepted the understanding that the venture

capital firm will take a large share of the profits you

earn.



As an entrepreneur, you should understand the nature of a

vendor firm, before pursuing this as a financing source.

This type of investor expects a projected return on

investment that is directly related to risk. The greater

the risk, the greater the return expected.



Typically however, an investment firm will not be

interested in getting involved with a new firm until the

business has established itself in some way, so the risk

factor can be determined.



The venture capital firm and its interest usually depends

upon the stage of the new firm's development. Once the new

firm has established itself and has a working

organizational structure, a viable business plan and

start up arrangement, a venture capital firm may be

interested.



However, some firms prefer a later stage of new business

development, perhaps when the new company is in its second

or third round growth state and needs more capital either

to carry out expansion plans or to tide it over until a

merger or public offering carries it to the next stage of

corporate growth.



A company's business plan serves as the primary analytical

tool for the venture capitalist. In analyzing the plan, a

venture capital firm would most likely focus on three

features.



The product or service. Investors seek product or service

innovations that give the company a strong competitive

advantage. A new idea, backed by market surveys (measuring

the appeal of the product or service and its potential

market) may be tempting to such investors. Management

capability.



No matter how good the product or how innovative the

service, the quality and experience of the management is a

key factor in the success of the business.



The astute investor is well aware of this and looks for

solid evidence of such skill. The industry's growth.

Investors also want to be sure that the product or service

is in a growth field. A significant or revolutionary

product improvement, by itself, may not have appeal in a

declining product or service category.



Most venture capitalists purchase common or convertible

stock rather than burden the fledgling enterprise with

interest payments on debt or debentures. They may possibly

want more than 50 percent ownership.



Additionally, while the venture capitalists may insist on

sitting on the Board of Directors or offering management

and technical advice, they are rarely interested in the

day-to-day management of the business, unless its survival

and their investment is at stake.



Keep in mind that the minimum investment is generally from

$50,000-$500,000, but investment ceilings are almost

unlimited.





About The Author:



Abe Cherian's online automation system has helped

thousands of marketers online build, manage and grow

their business. Learn how it can benefit you too.

http://www.imediatools.com