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ShadowD


Imagine if I were competing with Amazon, and I had a premium domain name like Store.com or something.

I would need venture capital at the $10-20 million range for 10% of the company because this could obviously be a huge company (yes, I do have a very strong plan to “penetrate” the market despite Amazon’s name, reputation, and size)

I’m just wondering how long it would take to obtain the venture capital? If I already have the business plan, would I be able to get a check within a month after presenting this to the venture capitalists?

I need this done before mid-May for personal reasons.

Pat Gage


e a new business owner you may find yourself a little confused by the different types of loans and investors. One of the most complicated to understand is called a venture capital agreement. This type of agreement is often overlooked, but it may be an excellent opportunity for you to fund your business. In this article we will go over business funding secrets that involve venture capital.

What is Venture Capital?

Put simply, venture capital is the assets that a business owner puts down when asking an investor for a loan. This may sound similar to a bank loan with an attached personal guarantee, but it is a little different. Since it is an investor putting down the money, they expect to gain a larger profit from the company compared to what they invested in it. A Venture capital firm will also sometimes want to have some rights over how your company is run, considering that they want to make a big profit.

Only certain types of companies are suitable for this type of agreement. If you are a company that is expected to make a large return profit in a short amount of time, this could be one of the best kept business funding secrets for you. If your business is expected to have slow growth, only needs a little money for startup costs, or if you are determined to run your business your own way, venture capital is not the way to go.

Pros and Cons of Venture Capital

There are many things to consider before getting a venture capital loan. Although they are a way for you to completely fund your business, you have to sacrifice a lot to do so. Not only are you potentially giving up the assets you put down, you also can\’t have as much control over your business. On the other hand, not having as much control may be a good thing. Venture capital investors are highly experienced in what they do, often limiting themselves to a single type of company to invest in. They will be able to direct you to the best business solutions, although they may make changes in your company\’s organization, possibly including the way it is managed.

It is also very difficult to get this type of loan. The investors really want to see that they are going to make a high profit off of your company in a short amount of time. You have to have solid foundations for your business plans and proof that your idea will work. You must be able to make the investor excited about your business, or they will think it is not worthwhile for them to invest in. Don’t think you are limited to this type of loan however, because there are plenty of other business funding secrets out there that you may not know about. If venture capital is not for you, consider looking into a private investor, or getting funding from banks.

Dave Kauppi


If you are an entrepreneur with a small healthcare technology based company looking to take it to the next level, this article should be of particular interest to you. Your natural inclination may be to seek venture capital or private equity to fund your growth. According to Jim Casparie, founder and CEO of the Venture Alliance, the odds of getting Venture funding remain below 3%. Given those odds, the six to nine month process, the heavy, often punishing valuations, the expense of the process, this might not be the best path for you to take. We have created a hybrid M&A model designed to bring the appropriate capital resources to you entrepreneurs. It allows the entrepreneur to bring in smart money and to maintain control. It combines the experiences of several technology entrepreneurs and with that of a traditional investment banker Merger and Acquisition approach and to create a model that both large industry players and the healthcare business owners are embracing.

The capital raising activities in the technology space led us to the conclusion that new product introductions were most efficiently and cost effectively the purview of the smaller, nimble, low overhead companies and not the technology giants. Most of the recent blockbuster products have been the result of an entrepreneurial effort from an early stage company bootstrapping its growth in a very cost conscious lean environment. The big companies, with all their seeming advantages experienced a high failure rate in new product introductions and the losses resulting from this art of capturing the next hot technology were substantial. Don’t get us wrong. There were hundreds of failures from the start-ups as well. However, the failure for the edgy little start-up resulted in losses in the $1 – $5 million range. The same result from an industry giant was often in the $100 million to $250 million range.

For every Cephalon, Epic Systems or Idec Pharmaceuticals, there are literally hundreds of companies that either flame out or never reach a critical mass beyond a loyal early adapter market. It seems like the mentality of these smaller business owners is, using the example of the popular TV show, Deal or No Deal, to hold out for the $1 million briefcase. What about that logical contestant that objectively weighs the facts and the odds and cashes out for $280,000?

The dynamics of this market, suggested a merger and acquisition model commonly used by technology bell weather, Cisco Systems, could also be applied to a broad cross section of companies in the healthcare sector. Cisco Systems is a serial acquirer of companies. They do a tremendous amount of R&D and organic product development. They recognize, however, that they cannot possibly capture all the new developments in this rapidly changing field through internal development alone.

Cisco seeks out investments in promising, small, technology companies and this approach has been a key element in their market dominance. They bring what we refer to as smart money to the high tech entrepreneur. They purchase a minority stake in the early stage company with a call option on acquiring the remainder at a later date with an agreed-upon valuation multiple. This structure is a brilliantly elegant method to dramatically enhance the risk reward profile of new product introduction. Here is why:

For the Entrepreneur: (Just substitute in your healthcare technology industry giant’s name that is in your category for Cisco below)

1.The involvement of Cisco – resources, market presence, brand, distribution capability is a self fulfilling prophecy to your product’s success.

2.For the same level of dilution that an entrepreneur would get from a VC, angel investor or private equity group, the entrepreneur gets the performance leverage of “smart money.” See #1.

3.The entrepreneur gets to grow his business with Cisco’s support at a far more rapid pace than he could alone. He is more likely to establish the critical mass needed for market leadership within his industry’s brief window of opportunity.

4.He gets an exit strategy with an established valuation metric while the buyer helps him make his exit much more lucrative.

5.As an old Wharton professor used to ask, “What would you rather have, all of a grape or part of a watermelon?” That sums it up pretty well. The involvement of Cisco gives the product a much better probability of growing significantly. The entrepreneur will own a meaningful portion of a far bigger asset.

For the Large Company Investor:

1.Create access to a large funnel of developing technology and products.

2.Creates a very nimble, market sensitive, product development or R&D arm.

3.Minor resource allocation to the autonomous operator during his “skunk works” market proving development stage.

4.Diversify their product development portfolio – because this approach provides for a relatively small investment in a greater number of opportunities fueled by the entrepreneurial spirit, they greatly improve the probability of creating a winner.

5.By investing early and getting an equity position in a small company and favorable valuation metrics on the call option, they pay a fraction of the market price to what they would have to pay if they acquired the company once the product had proven successful.

Let’s use two hypothetical companies to demonstrate this model, Big Green Technologies, and Mobile CRM Systems. Big Green Technologies utilized this model successfully with their investment in Mobile CRM Systems. Big Green Technologies acquired a 25% equity stake in Mobile CRM Systems in 1999 for $4 million. While allowing this entrepreneurial firm to operate autonomously, they backed them with leverage and a modest level of capital resources. Sales exploded and Big Green Technologies exercised their call option on the remaining 75% equity in Mobile CRM Systems in 2004 for $224 million. Sales for Mobile CRM Systems were projected to hit $420 million in 2005.

Given today’s valuation metrics for a company with Mobile CRM Systems’ growth rate and profitability, their market cap is about $1.26 Billion, or 3 times trailing 12 months revenue. Big Green Technologies invested $5 million initially, gave them access to their leverage, and exercised their call option for $224 million. Their effective acquisition price totaling $229 million represents an 82% discount to Mobile CRM Systems’ 2005 market cap.

Big Green Technologies is reaping additional benefits. This acquisition was the catalyst for several additional investments in the mobile computing and content end of the tech industry. These acquisitions have transformed Big Green Technologies from a low growth legacy provider into a Wall Street standout with a growing stable of high margin, high growth brands.

Big Green Technologies’ profits have tripled in four years and the stock price has doubled since 2000, far outpacing the tech industry average. This success has triggered the aggressive introduction of new products and new markets. Not bad for a $5 million bet on a new product in 1999. Wait, let’s not forget about our entrepreneur. His total proceeds of $229 million are a fantastic 5- year result for a little company with 1999 sales of under $20 million.

This model combining the Cisco hybrid acquisition experience with a traditional investment banking merger and acquisition process provides a vehicle to fund interesting healthcare technology companies. The small entrepreneurial firm looking for the “smart money” investment can be matched with the appropriate growth partner or the large industry player looking to enhance their new product strategy with this creative approach. This model has successfully served the technology industry through periods of outstanding growth and market value creation. Many of the same dynamics are present today in the healthcare industry and these same transaction structures can be similarly employed to create value.

Naz Daud


In past years, attracting venture capital interest might have been considered to be a relatively unchallenging feat by most successful entrepreneurs and small business owners. With a sound business model and a good growth strategy, it seemed fairly straightforward to obtain the financial investment and support which was needed to boost the business to the next level. However, recent months have certainly changed the face of venture capitalism, and it is important to fully understand the most effective means of approaching investors in the light of the economic downturn.

There are many small business owners who have shied away from the concept of venture capital in recent times, for three main reasons. The first reason tends to be a general uncertainty as far as the economy is concerned. With global financial institutions and national banks collapsing in ruins as a direct result of risky or foolhardy investments, how is it possible to find a good, solid investor? The last thing any business needs is an investor promising the finance and then failing to deliver.

The second concern that entrepreneurs tended to have lately is that the investment itself is unlikely to be easy to obtain. Investors are clearly much more cautious when approaching potential business investments. This has tended to encourage small business owners to make assumptions about their own business model which may or may not be true. Specifically, one assumption is that their business is not likely to win the interest of investors, and therefore there is little point in trying.

The third issue facing business owners is the long term viability of their own business. Are their plans and hopes more than simple misguided dreams? If they have any doubts or worries about the future strength of their business, then clearly investors will see that lack of enthusiasm and pass them by. Any self doubts should be dealt with thoroughly before any capital is sought.

Venture capital as a concept has been around for at least a couple of hundred years, but it is only in the last couple of decades that private venture capital investors have sought to invest in smaller businesses. There are some venture capitalists around today who have a heritage much greater than a decade or two. For this reason there’s little point in a small business trying to secure funding from an investor who has generations of experience in venture capital.

Ultimately, however, potential investment will rest on a couple of aspects: the long term viability and profitability of the business model. For this reason it is essential for any business seeking venture capital to make sure that the core viability of their business is sound and has growth potential.

This makes sense, because in a world where businesses cannot take anything for granted, regardless of their size or heritage, it is essential that they are not deluding themselves into thinking that they have a profitable business in the making. Any good investor will have the experience and understanding to ask questions which pierce any flowery presentations and establish exactly how viable the business is, how profitable it will be, and what evidence and market research has been provided which does corroborate these facts.

It is facts, not fluff, in which the investors will be interested, and for exactly the same reason, so should the business seeking funding. To gain interest, today more than at any other time, it is essential for businesses to look critically in the nuts and bolts of their company, the potential, the market research and facts which can support their long term plans and predictions. Once they have achieved this then they are closer to gaining the interest of a venture capitalist or private investor.

Webmaster


Venture capital, or private equity finance, is capital provided for high-growth businesses in the early stages of development. These businesses must already be trading (venture capital funding isn’t normally used for start-ups) and must have the potential to offer huge returns.

Venture capital is usually sought if the investment required is more that can be raised through banks, friends/family or business angels. It’s often known as risk capital because of the huge amount of risk involved – venture capital is unsecured, and repayment depends on the profitability of the business.

Rather than a loan, venture capital funding is a long-term investment that is offered in exchange for a share in the business. It usually comes with an element of ownership or control, where the investor has some say in the business and brings experience and expertise to help to make a success. It’s usually repaid through profits and dividends rather than set monthly amounts, and isn’t subject to interest as a traditional loan is.



Venture capital is provided by venture capitalists. These can be wealthy individuals and entrepreneurs that have amassed fortunes of their own, or firms that invest on other people’s behalf. They may operate individually and invest their own money, but more often than not they work in networks or companies – venture capital firms that can provide high-risk investments to businesses in all sectors of the market.

For venture capital to be a viable option of raising finance, your business needs to at the stage where a large amount of funding is required.  Venture capital isn’t offered to start-ups or small time businesses, but to those that are appealing to an investor and that offer a huge amount of growth and potential. Ultimately, the aim of venture capital is to provide financing for businesses that can eventually generate the biggest return through take-over or sale of the company.