Jul 31

Venture capital funds – emotional decision.

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To start a business, you need an idea. More aptly put, you need a vision that you are passionate about. Without passion, most businesses fail because the owners are not motivated to get through the hard times. This same passion can become problematic if you seek out venture capital funding.

If you own a small business or know someone that does, how is the business referred to in discussions? Is it ever referred to as “the business”? No. It is always referred to as “my business”. Why is this? The simple fact is most businesses will not make it if they owner is not emotionally invested. If there is no passion, it is simply to easy to walk away when the business hits tough patches and every business hits them. This is why most banks have learned to avoid loaning money to banks less than two years old.

Venture capital is seen as the Holy Grail by many small businesses. There sits a pile of money that can cure all the cash flow and financial issues faced by the company. It is enough to make any small business owner fall to their knees and start praying. As we know, however, there is a positive and a negative to practically everything. This is true of venture capital funding as well.

Business owners can find venture capital funding to be the best thing that every happened to their business…or the worst. Why? Well, one has to understand the nature of venture capital. It usually comes in the form of a fund, much like a mutual fund. This one is private however, and consists of millions of dollars in contributions by wealthy individuals and companies. They are willing to take on big risk, but expect big returns in exchange for doing so.

It is absolutely vital that you understand the goal of a venture capitalist – to make as big a return as possible as fast as possible. If this is your goal as well, then things should go well, but you still need to take an emotional step. If you take on venture capital funding, the company is no longer “my” business. It is now “our” company, with our including the venture capitalists. When they pop 10 million dollars into your business, they are going to want to see a return and will take whatever steps are necessary to do so.

Is venture capital the way to go for every business? Of course, not. That being said, if you can divorce yourself from the business, Payment can be rich and successful.

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Jul 31

Costs.

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Firms may raise equity capital internally by retaining earnings. Alternatively, they could distribute the entire earnings to equity shareholders and raise equity capital externally by issuing new shares. In both cases, shareholders are providing funds to the firms to finance their capital expenditures. Therefore, the equity shareholders’ required rate of return would be the same whether they supply funds by purchasing new shares or by foregoing dividends, which could have been distributed to them. There is, however, a difference between retained earnings and issue of equity shares from the firms point of view. The firm may have to issue new shares at a price lower than the current market price. Also, it may have to incur flotation costs. Thus, external equity will cost more to the firm than the internal equity.

Is equity capital free of cost?

It is sometimes argued that the equity capital is free of cost. The reason for such argument is that it is not legally binding for firms to pay dividends to ordinary shareholders. Further, unlike the interest rate or preference dividend rate, the equity dividend rate is not fixed. It is fallacious to assume equity capital to be free of cost. As we have discussed earlier, equity capital involves an opportunity cost; ordinary shareholders supply funds to the firm in the expectation of dividends and capital gains commensurate with their risk of investment. The market value of the shares determined by the demand and supply forces in a well functioning capital market reflects the return required by ordinary shareholders. Thus, the shareholders’ required rate of return, which equates the present value of the expected dividends with the market value of the share, is the cost of equity. The cost of external equity would, however, be more than the shareholders’ required rate of return if the issue prize where difference from the market price of the shares.

In practice, it is a formidable task to measure the cost of equity. The difficulty bribes from two factors;

1. It is very difficult to estimate the expected dividends.

2. The future earnings and dividends are expected to grow overtime.

Growth in dividends should be estimated and incorporated in the computation of the cost of equity. The estimation of growth is not an easy task. Keeping these difficulties in mind, the methods of computation the cost of internal and external equity are discussed next posts.

The cost of retained earnings determined by the dividend valuation model implies that if the firm would have distributed earnings to shareholders, they could have invested it in the shares of the firm or in the shares of other firms of similar risk at the market price (Po) to earn a rate of return equal to equity cost. Thus, the firm should earn a return on retained funds equal to cost of equity to ensure growth of dividends If the share price is lower than the return to market share through Next to these is a new set of shareholders, because no repairs will focus on the costs.

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Jul 30

Sales of the joint venture.

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We often hear that joint venture marketing does not work. The reason why it may be ineffective for some businesses is because they do not have an effective system.

Developing a good partnership with a business that compliments you, requires that you educate the prospective business of the benefits of working together.

Many times we are asked, what do you mean by joint venture marketing? In essence, it is a partnership where your services compliment each other.

Some rules apply when choosing a company to enter a joint venture relationship with. Their business must compliment your Unique Selling Proposition, and your target market. You must understand how this business marketing mix will benefit and enhance your business. Once you understand this, offer to do business with them.

Obviously, not every business that you approach will appreciate the benefits of working with you in this capacity. You must realize that only a small percentage will. The final thought on this matter is that your objective for developing joint venture partners must be clear for each that you pursue. It must be in line with your vision and purpose for your company.

How to Sell the Idea

You should add value to the other business in some way. Faster sales, access to clients they don’t have or even access to a new industry. Make them aware of the long term value of a new customer. Often it’s easy to think in terms of short term profits instead of long term growth. Each new client will refer even more clients.

Give them some testimonials from your past clients and even people to call for a direct testimonial. This should convince them to work with you.

Joint ventures can be very profitable, but you have to do your research on the best companies to work with. Just one good joint venture partner can double your sales.

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Jul 30

This is a real risk of the applicant.

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Venture Capital. It comes in many shapes, forms, opportunities…but shares a common characteristic: a risk is taken. In my line of work, I run against many “fire-in-the-belly” entrepreneurs who genuinely have a fantastic idea or business plan. Unfortunately, they lack the capital necessary to turn their business plan and/or ideas into a reality.

Every month, at least 100 projects cross my desk where the borrower is looking for a joint venture partner or venture capital. Unfortunately, only one or two of these will get funded. One of the reasons is the market itself: banks are not lending, the secondary market is non-existent….so all that is left is money from private equity…especially if you are looking for 100% financing.

Let’s talk about the transactions that actually DO GET FUNDED…these are projects that have a high degree of predictability. A power plant with a contract to purchase it’s product for 25 years, for example. A casino in the Bahamas that has a 180% internal rate of return…in short, these are all projects that are predictably profitable and will give the investors (joint venture partners or venture capitalists) a HUGE return on their investments. Other great projects are projects where there is proprietary or patented information or technology.

While a 20% IRR (internal rate of return) is respectable, it just isn’t attractive to venture capitalists who can Seven other projects the money. In less time in the short term, if you talk about joint ventures are concerned about one thing. : How much money can invest in your project. And you think they can speak their own language.

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Jul 30

Win Win situation for the partner authority.

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Go For Your Win-Win Situation Of Joint Venture Partnerships – Your First Steps In Understanding Their Power. You’ve almost certainly heard of stories whereby people have gone from barely getting by financially to, almost seemingly overnight, having become quite wealthy indeed. You have probably also heard that a number of people out there are making millions of dollars as a result of moving in to what is termed Joint Venture partnerships. The thing that makes these people’s stories so incredible to comprehend is that before they went in to these partnerships, they were actually unheard of and probably earning what they would term just an average income.

It was these partnerships they embarked upon that created the rapid improvements in their businesses and profits.

Joint Ventures are where businesses merge and work together to contribute to, and share, profits, knowledge, resources, tools, markets, expertise, information etc. They can actually assume various different composition modes, dependent upon the type of partnership situation that is being formed, and for what purpose.

It might be that a group of smaller companies or businesses unite in order to stand up to, and be a force to reckon with, the bigger companies, or businesses, within their industry. Large companies or businesses will sometimes form mergers/ unions with fast-growing, smaller businesses that have demonstrated the right promise.

Smaller companies are also able to form business mergers/ unions with companies that have a big name within their industry in order for them to be able to increase their reach to larger communities/ globally.

It was approximated that around 25% of all of 2005 profits of around $40 trillion could be attributed to the fact these profits were as a result of businesses having gone in to JV partnerships with other businesses. This really then lends itself to demonstrating the importance small business owners should definitely not disregard the profits JV partnerships can also afford them.

Let’s take a look at a few of the valuable opportunities you can obtain from forming these JV partnerships.

o You can greatly reduce the lengthy amount of time you might ordinarily have spent yourself on business growth. If you currently own a small business, then forming JVs essens the need to continually be e.g. creating new products, therefore freeing up more time to be able to expand your market reach etc. All of these things do not occur immediately, as they take time to happen, so freeing more time for you to concentrate on one or two areas within your business growth, and do them well, instead of trying to do them all, and working with others who have expertise in other areas within the JV partnership and with them concentrating on those areas, the result would be that you all will only see your businesses grow and profit a great deal more.

JVing also enables you to attain more leads, hone in on the expertise of all who form the partnership, accumulate fewer costs, have further reach, achieve greater profits, merge lists etc.

o Your businesses’ credibility will be greatly enhanced. One of the most frequent problems faced by new businesses starting out is that they find it difficult to gain credibility in their niche market, and with their customers.

Forming JV partnerships with other businesses/companies that are already known and trusted will considerably improve your credibility with your customers.

o You are able to have new income sources. Usually small businesses/ companies don’t have sufficient funds and resources required for expansion and growth of their businesses.

Forming these type of JV partnerships with reliable, established, rock-solid partners, will result in your credibility, and profits etc, being able to be expanded for a much lower cost.

o You will be protected from competitors, of whom there are many out there, and, in all likelihood they will otherwise attempt to gain access to your business.

This is why a Joint Venture partnership with some of the big players out there will assist in lessening the likelihood of this occurring, resulting in building a solid business that keeps your competitors out, but which offers higher profits as a result.

Taking note of all these amazing benefits you can attain from forming JVs, you are more than likely extremely keen to commence going in to one asap. However, it is vitally important to not rush in and join in the first ones you come across. When a poorly carried out, and poorly planned, partnership is formed, and too quickly, then it is definitely fated from the start.

Then what secrets constitute successful Joint Ventures?

o You need to have clear objectives, knowing what it is you want to achieve with this partnership, right from the very outset. The partner(s) you might select might not have the same goals exactly as you have, but they should complement yours.

o The correct partner(s). The most successful partnership(s) should create a win-win situation for all involved. It is important to find people that are truly interested in JVing and that have set similar objectives to you, as, if this is not the case, and they are at odds with your objectives etc, you will more than likely be at loggerheads with each other in the not too distant future.

o Plan the Partnership. Work out a plan including how you will consult each other; negotiate with each other and the approaches to issues you will use. It is important to really be aware of, and understand, the various facets of the partnership you are actually getting into. Remember, the main thing you should be focussing on is entering in to a win-win partnership.

o Handle the JV partnership well. You are going to be in it for a long time, much like the relationship of a marriage – let’s hope, permanent. The basis of it should be established on trust and understanding. Once this type of successful win-win partnership is formed, it is then the time that the real work together can commence. When you find this type of JV partnership, it is so important to truly treasure it, and treat it the right way, as you would treat something that is extremely precious and valuable to you.

JVing really can work successfully for all those involved, but it is vitally important to understand the processes that form part of We will sail smoothly over the report.

So … now it's time you see a good relationship with the JV and I wish you all the best!

Good luck!

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Jul 30

Venture Capital.

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Venture capital represents financial investment in a highly risky proposition in the hope of earning a high rate of return. While the concept of venture capital is perhaps as old as the human race, the practice of venture capitalism has remained somewhat fragmented and individualized through its long history. Only in the last four decades or so has the field of venture capital acquired a certain coalescence, maturity and sophistication, particularly in the US.

The origin of venture capital in its modern form may be traced to General Doriot, who established the American Research and Development Fund at the Massachusetts Institute of Technology in 1946, to finance the commercial exploitation of new technologies developed in US universities. The small business act of the US permitted the Small Business Administration to license and even support financially small business investment companies engaged in venture capital finance, provided fuel to the growth of venture capital finance.

Larger companies in the US like Xerox, 3M and General Electric entered the field with their venture capital divisions. These examples from the US stimulated the development of venture capital throughout the world. Though the initial efforts made in the early seventies to introduce venture capital were rather unsuccessful, the changed environment of the eighties witnessed a phenomenal growth of hi-tech industries and provided a fertile ground for the blossoming of venture capital.

Venture capital plays a helping hand in the financing of startup and early stage businesses, as well as businesses in “”turn around”" situations. Firms raise funds from different sources. Some funds like share capital are kept permanently in the business. Some funds like debentures are kept for long periods; while some funds are kept for short periods. The entire composition of these funds in an organization is generally termed a financial structure. Generally, the short-term funds are excluded since they are shifting often and the composition of long-term funds is known as capital structure.

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Jul 29

Credits – Location away

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You may need financing to begin your business venture or to expand into a new product line or area of business. But where should you look for that capital? You have many options.

1. Check out your local bank. Since you have already established a relationship, check with your business bank. Most banks have a business department or person dedicated to serving businesses. Find out what types of financing are available, including the terms and conditions.

2. Small Business Administration. The SBA loan is partly guaranteed by the United States Small Business Administration. There are a number of different loan programs for small businesses. Each loan is actually financed through a private commercial lender.

3. Business capital lenders. These independent companies are more likely to take riskier loans than a bank. Many specialize in certain industries, loan sizes, or types of loans.

4. Private financing. Normally you can find private financing through a business capital broker who will feed your loan request to a private individual or group. Or you may be able to put together your own group of financiers.

5. Personal funds. Depending on how much you need, consider obtaining the funds from your personal accounts.

6. Family. Maybe your parents or dear aunt has some extra cash and is willing to help. Be sure to pay a fair interest rate and make your payments on time.

No matter what source you use to Get money for your business, you have to negotiate the terms of the face and everything you need to write. This applies only to personal and family funds. Read all documents carefully and consult outside if you're not sure.

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Jul 29

The basics of investing.

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Venture capitalism would be one of the things, which keeps businesses booming everywhere. It is basically one of the ways, which helps the newer businesses to thrive and flourish, because venture capitalists are always looking for fresh and innovative ventures, which could potentially yield a large return in the long run. They are not really into those businesses, which are already flourishing as they have more interest on the ones, which are just starting out or in need of restructuring.

Venture capital essentially refers to the funds that a venture capitalist provides to a venture or business in exchange for a company’s stake. Instead of simply loaning the money, these venture capitalists invest on the business in the hopes that it would be yielding a lot of money eventually. This would mean that whatever future profits and earnings of the company, he or she would have a share in it. This would go the same with any losses.

Venture capitalism is truly a risky business however it has become the source of support of the industry as a lot of start-up companies depend on these forms of investments to be able to keep their business operational and also to make sure that their ideas would materialize. Generally, those people that have great ideas and the knowledge to be able to execute them look for venture capitalists to get funding for their capital. Since they are not yet The importance of these people usually do not use institutional means such risks Bank's private banking institutions and other financial institutions.

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Jul 29

Seven other sources of funds for their organizations.

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Borrowing from banks is every small entrepreneur’s nightmare. One gets turned down for bank loans for a variety of reasons, including lack of assets, collateral and business experience. Don’t despair, however. There are several common types of alternative sources of capital for setting up a business available to young companies.

Savings and Investments

The first source you should consider is your own savings and investments. One disadvantage though of self-financing is that if things did not turn out the way you want them to be it will be your money that goes down with the ship.

Angel Investors

Angel investors are affluent individuals who provide capital for a business start-up, usually in exchange for ownership equity. These individuals are looking for a higher rate of return than would be given by more traditional investments (typically 25% or more).

Angel investors are an excellent source of early stage financing and high-growth start-ups. They are often willing to tread where there is too much risk for banks and not enough profit potential for venture capitalists. And since angel investors are often retired business owners and executives, they can also provide valuable management advice and important contacts.

Peer to Peer Lending

Peer-to-peer lending is a means by which borrowers and lenders may transact business without the traditional intermediaries, such as banks. It can also be known as social Lending, ordinary people lending money. The process may include other intermediaries who package and resell the loans–examples are Prosper.com and Zopa-but the loans are ultimately sold to individuals or pools of individuals. Prosper.com, which is available in the US only, offers business loans for small companies.

An enabling technology for peer-to-peer lending has been the internet, which connects borrowers with lenders, for example through an auction-like process in which the lender willing to provide the lowest interest rate “wins” the borrower’s loan. (wikipedia.com)

Money pool

Instead of a bank loan, borrow smaller sums from several family members, friends, or colleagues. The lenders have no legal ownership in the business, but can act as advisors and cheerleaders for your venture. Remember though that nothing causes tension in a family like lending money that is never paid back.

Credit Cards

Many business owners use their credit cards to fund their businesses. Credit cards offer the ability to make purchases or obtain cash advances and pay them at a later time. But as a long-term financing method, they can be expensive. Most credit cards will charge you 2% to 4% of the face value of a cash advance as a “fee” making this method of financing very risky.

Bootstrapping

Another source of capital for setting up a business is bootstrapping. It is a way to finance a business by saving rather than borrowing money. It’s being as frugal as possible so your business can be started on as little cash as possible.

The use of private credit cards is the most known form of bootstrapping, but a wide variety of methods are available for entrepreneurs. Other forms of bootstrapping include owner financing, minimization of accounts receivable, joint utilization, delaying payment, minimizing inventory and subsidy finance.

While bootstrapping involves a risk for the founders, the absence of any other stakeholder gives the founders more freedom to develop the company. Many successful companies including Dell Computers were founded this way.

Venture Capital

Venture capital is not suitable for all entrepreneurs. It is an option for small companies that have a seasoned management team and very aggressive growth plans; however, venture capitalists will rarely invest in small businesses that have no intention of going public. If a company does have the qualities venture capitalists seek such as a solid business plan, a good management team, investment and passion from the founders, a good potential to exit the investment before the end of their funding cycle, and target minimum returns in excess of 40% per year, it will find it easier to raise venture capital.

The venture capitalist objective is to invest in a company Short period of time – say five years – and while the company's cash return on investment significantly.

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Jul 28

Increase investment in the venture.

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A lot of startup companies do not have that much capital to start their business and to struggle to remain operational. They would usually turn to support from outdoor investors until such time that they are able to achieve profitability. If you own a small business, then you probably know that getting funding for your company would be one of the hardest business challenges that you would face.

Looking for this venture capital would be an increasingly growing trend, which is fueled by the combination of different factors like abundant entrepreneurial talent, improvement of the IPO market, promising new technologies as well as government policies, which favor venture capital formation. It is no wonder why there are venture investors who continue to launch as well as support the development of a great number of new business concepts and technologies.

Venture capital investments are able to provide you, as well as your company with the resources that it needs to be able to grow to its maximum potential, because it is used for numerous things. For instance, you might want to invest in new machinery, top-notch talent, manual laborers or you might want to start investing in new technology or research. To be able to help you out in putting you on the path towards securing your venture capital, try to follow these steps in attracting the attention of investors on venture capital.

First would be to network. This would be one of the primary steps to take in the process of attracting an elusive venture capital. Business networking is actually an important tool to use in your business any time of the year. You would then need to have an experienced group of business partners to work with you, as venture capitalists usually check if you have a structured organization and loyal employees within your company. Also, you would need to Destination for professional sales and your own thoughts. Finally note that the media is always good for society.

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