Since venture capitalists become part owners of the companies in which they invest, they tend to look for businesses that can increase sales and generate strong profits with the help of a capital infusion. Most venture capital firms look for investment opportunities in the $250,000 to $2 million range. Ideally, the company and its product or service will have some unique, marketable feature to distinguish it from imitators. Most attractive are innovative companies in rapidly accelerating industries with few competitors. In general, venture capitalists are most interested in supporting companies with low current valuations, but with good opportunities to achieve future profits in the range of 30 percent annually. While most venture capital firms require their client companies to have some operating history, a very small number handle startup financing for businesses that have a well-considered plan, something "new," and an experienced management group. The maturity of the company may also be a factor. Some venture capitalists specialize in certain technologies, industries, or geographic areas, for example, while others require a certain size of investment. As a result, venture capital firms set rigorous policies and requirements for the types of proposals they will even consider. Since it is often difficult to evaluate the earnings potential of new business ideas or very young companies, and investments in such companies are unprotected against business failures, venture capital is a highly risky industry. Overall, experts suggest that entrepreneurs should consider venture capital to be one financing strategy among many, and should seek to combine it with debt financing if possible. The disadvantages associated with venture capital include the possible loss of effective control over the business and relatively high costs over the long term. Venture capital offers several advantages to small businesses, including management assistance and lower costs over the short term. The most important thing an entrepreneur can do to increase his or her chances of obtaining venture capital is to plan ahead. Once an entrepreneur's venture has been determined to be of a kind that may interest venture capitalists, the next move is to start planning. Venture capital firms usually look for investment opportunities with firms that offer rapid growth as well as something new: a new technology or technology application, a new chemical compound, a new process for the manufacture of a product, etc. This profile does not fit with the venture capitalists' objectives. An entrepreneur with a small start-up should not consider venture capital if, for example, her objective is to grow her fledgling graphic design service into a middle-size regional greeting card business. Even then, they tend to approve only a small percentage of the proposals they receive. Before providing venture capital to a new or growing business, venture capital organizations require a formal proposal and conduct a thorough evaluation. Venture capital is more difficult for a small business to obtain than other sources of financing, such as bank loans and supplier credit. After this time, the equity is either sold back to the client-company or offered on a public stock exchange. In addition, they often wish to obtain this return over a relatively short period of time, usually within three to seven years. Due to the highly speculative nature of their investments, venture capital organizations expect a high rate of return. In exchange for their funds, venture capital organizations usually require a percentage of equity ownership of the company (between 25 to 55 percent), some measure of control over its strategic planning, and payment of assorted fees. Such venture capital organizations generally invest in private startup companies with a high profit potential. Venture capital may be provided by wealthy individual investors, professionally managed investment funds, government-backed Small Business Investment Corporations (SBICs), or subsidiaries of investment banking firms, insurance companies, or corporations. Venture capital is a type of equity investment usually made in rapidly growing companies that require a lot of capital or start-up companies that can show they have a strong business plan.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |