Venture Capital Archives - Page 7 of 8

03/30/201203/07/2012

Traversing the Entrepreneur’s Valley of Death with a Business Plan

The business plan is a bridge that extends from initial startup to plans for long range success. That bridge crosses a wide canyon that includes seed money, angel investors and eventually venture capitalism and commercial funds. The first round of funding by angel investors is enough to get the business established and generating income through modest growth, but at some point for successful businesses the funding chasm becomes wide and deep. This Valley of Death, as the $2 million to $5 million is not so affectionately called, can kill young businesses if it’s not traversed with injections of new venture capital investment money. On the other side of the valley can be found business loans from traditional lenders meaning the company is now poised for unlimited growth.

There’s a lot of debate on whether this valley really exists. Many business analysts believe there is always money for market worthy companies that need cash. This is based on the assumption that inefficient companies or companies with products that don’t succeed in the marketplace will drop out of the running for funding. That leaves the companies with competitive products and services looking for funding. Angel investors play an important role in this process because they fund companies with the well designed business models and that are most likely to succeed over the long run based on their analysis. The poorly prepared business plan and angel investors act like culling tools and force bad ideas out of the funding process early in the process.

Crossing the Valley of Death will take a concerted effort to find multiple sources of funding in many cases. For example, young entrepreneurs can bridge the gap by vigorously blending venture capital with government tax credits. A fairly new concept is the ‘certified capital company’ in which a state issues tax credits to companies in return for making investments in young businesses ready to cross the Valley of Death. There are a number of new and creative funding concepts being introduced across the nation to stimulate job growth and economic development.

In other words, if you need angel funding or are facing the Valley of Death, rest assured that professionals familiar with the funding environment can steer you to funding arrangements you may not even be aware exist. If you see the Valley of Death looming, it only means you have been successful already.

More detailed information and useful advice can be found at www.funded.com Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

03/21/201203/07/2012

Angel Investors Remain Committed to Business

Angel investors have been a “significant contributor to job growth” according to the University of New Hampshire Center for Venture Funding Angel Market Analysis Report. Entrepreneurs preparing business plans may also like to know that angel investments were made in healthcare (25%), industrial/energy (17%), biotechnology (14%), software (11%), media (8%) and retail (8%). In other words, angel investors invested in most industries the first half of 2011.

Government officials frequently talk about job creation. It’s interesting to learn that jobs are being created steadily through private investment in small to medium sized startups. Small business has always claimed that real job and economic growth relies on small business success more than the success of large corporations. In fact, two-thirds of new jobs in the U.S. are due to small businesses. Startups and small business expansion play critical roles in the economy and in promoting job growth. Since angel investors fund small business, that makes them just as critical to economic growth.

In 2011, angel investors created 134,130 new jobs. The angel investors also increased their seed and startup funding in the first 2 quarters of 2011. This was interpreted as a good sign because it reflects an increasing rate of small business development which means economic and job growth. If there is any doubt of the availability and economic influence of angel investors then consider the fact that the total amount of angel investments in the first 2 quarters of 2011 was $8.9 billion.

The data clearly shows that angel investors, despite their low profile, are a powerful economic force in the U.S. If you are interested in finding startup funding, rest assured there are angel investors interested in your plans.

03/19/201203/07/2012

The Typical Angel Investor? No Such Thing!

Have you ever wondered where angel investors come from or what type of people you are going to present a business plan to? Is it a Donald Trump type of person – flamboyant and quite wealthy? Or is the investor someone more like your neighbor down the street who has quietly amassed a small fortune yet lives frugally? The truth is that the angel investor could be either person or a group of people.

The stereotype of an angel investor is someone who is a hardened business entrepreneur who has amassed great wealth but is always ready to create more. The image is of someone who swoops in, evaluates the business plan, does some inquiries and then funds a startup with the expectation of high returns. In reality, the angel investor may not be wealthy but is financially savvy. Many are still employed but looking for a way to grow their money by promoting innovative new businesses.

Angel investors fill a gap that exists between the venture capitalist and the commercial lender. Venture capitalists and financial institutions lend larger amounts with the former willing to accept high risk and the latter expecting minimized risk. Many angel investors invest smaller amounts of money, $20,000 instead of $200,000, but there are no limits so $500,000 up to $2 million is possible. They don’t want to play an active role in the business, but do have business savvy. Mostly they just want to make money.

Angel investors are also groups of people who pool their money to fund startup businesses. They include investment clubs, professional groups like doctors or lawyers and even other entrepreneurs. The reason there is a bit of mystery surrounding angel investors is simply because they keep a low profile, so are difficult to categorize. What you do know is that they are financially savvy, thorough in their evaluation of businesses and hopeful of earning a high return on their investments. So don’t stereotype angel investors because they can be anyone.

03/14/201203/07/2012

Enter the Angel Investors at the Startup Stage

Financing a small business is done in stages with angel investors usually funding startup expenses. The amount of startup funding needed is figured in the business plan financial section along with projected revenues. Startup funding is actually just one stage of business financing because a new business must be funded from idea conception to expansion.

Businesses operate on a continuum. Initially, seed money is needed to do the original product development, business filings, research and market survey. The entrepreneur often gets the seed money from personal savings, family and friends, or personal loans. Some even use their credit cards or house equity. In other words, seed money usually comes from personal resources because at this stage the business is only an idea and the risk of losing the money is too high.

Once it’s determined that the idea can be turned into a solid business, the picture changes. The business plan is prepared and the enterprise begins operating. At this point, the first revenues are generated which establishes the fact that the products or services are market viable. It is at this stage, often referred to as the series A or first round investment, that angel investors are approached. However, sometimes entrepreneurs will look for outside investors who will actually pay for startup. In other words, the business doesn’t begin operating until funding is obtained from venture capitalists willing to accept higher risk investments.

Angel investors can also be approached during the second round or series B investment stage. This is the stage at which initial expansion after startup takes place and funding is needed for inventory, staff or marketing expansion. Later expansions using angel investments would be referred to as series C, series D and so on. In this way, each investor knows by investment reference how their investment ranks in the history of the business funding.

Eventually, a successful business will look for a larger funding source like a bank to finance a major expansion. Angel investors play an important role in the launch of new businesses and enter the business at one of its most critical stages. It’s no wonder they are called “angels.”

More detailed information and useful advice can be found at http://www.funded.com/ Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

03/09/201207/12/2023

Accepting Economic Challenges Via the Business Plan

Addressing today’s economic environment in a business plan may seem challenging, but it’s also the perfect time to prove you’re up to the challenge. In fact, angel investors are aware that successful ventures in a tight economy are poised for expansion when the economy improves. Successfully starting, managing and growing a business when the GDP is expanding at a sluggish 3 percent (like now) or less is indicative of a business with high growth potential as the economy returns to normal. Though capital access may seem tight, making it difficult to obtain venture funding, the fact is that it’s time like these where some of the greatest opportunity exists.

For example, tight markets mean less competition for both customers and funding. The people who succeed in this type of economic climate are the ones who have solid business plans and excellent ideas. The general quality of brands is necessarily raised because only the best can compete. These companies are attractive to investors looking to fund companies with growth potential.

Another way to look at the business climate is that businesses able to develop business plans that accommodate tight capital markets are more likely to attract angel investors. The reason is due to the fact the investors will recognize that the financially conservative business is prepared for economic downturns as well as upswings. Too many business plans begin with unreasonable expectations given market conditions. Clearly showing how your business will succeed in tight economic conditions is, at the same time, showing how the business is prepared to successfully maneuver during periods of uncertainty or even setbacks over the long term. Compelling business ideas coupled with managed risk is an excellent formula for attracting angel investors.

More detailed information and useful advice can be found at https://www.funded.com/ Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.

03/08/201203/07/2012

Dot.business plan for a Dot.com

Writing business plans to find angel investors interested in funding internet entrepreneurship is similar but not identical to writing proposals for brick-and-mortar only businesses. A company that is going to be operated solely online still needs a strategic business plan that defines the business in detail, identifies market strategies to build a customer base, analyzes competition, lays out the operations and management plan and presents the financial plan. However, there’s a twist because investors will want to know how you plan on making your website stand out in a very crowded electronic superhighway and how you plan to attract and keep customers, who you will never meet, on the website long enough to spend money. There are millions of websites already up and running, but due to a lack of business planning they are virtually alone in a virtual world.

A strategic business plan for an internet based company must include the traditional business information, but it also requires planning for online design and content, online marketing strategies, website support and upgrades, online product ordering and security. Even planning for customer service has unique features in that contact will be primarily electronic. Angel investors will want to know how you will blend online and offline promotion strategies to insure maximum exposure. Internet marketing strategies address the marketing funnel in which customers are attracted to the website and then moved along a narrowing path to ordering and payment using a variety of well-designed enticements. A well thought out business plan for an internet based business addresses plans for accessing the right kind of business management technology to insure sales are captured using a virtual gateway and online shopping cart.

In other words, angel investors will review the business plan for thoroughness on two levels instead of one – traditional and electronic. Just because the business will be internet based doesn’t mean you can skip the traditional strategic planning. It only means you need to expand and integrate the unique features and requirements of an online business.

03/07/201203/09/2017

Writing Business Plans that (Really) Matter

Business plans are not all alike and neither are angel investors, venture capitalists and loans. Then why do so many business plans seem like carbon copies of each other? Rubber stamping, so to speak, a business plan and only changing the names isn’t going to generate much interest among savvy investors. How many small businesses are ready to become the next corporate success story, but can’t seem to get investor interest? There are plenty, and many will never get a chance to find success because their business plans don’t pique the interest of angel investors or any other investor for that matter. The business plans are just too ordinary and fail to convey the uniqueness of the new idea, concept, product or service.

If you took a test and it said to name the most common mistake made on business plans, would you know the answer? The answer is: The business plan begs for money but doesn’t beg for understanding. A business plan is much more than a plea for money. It’s a driver’s manual that defines goals and objectives while providing the road map to a new destination. If the directions are clear and point right towards what makes your idea market unique, investors can’t get lost on their way to the endpoint. That’s where the financing waits. Focus on what makes your concept unique and prove you have carefully thought through the components of success – people, opportunity, context or relationship to industry and market, risks and rewards. In other words, write a business plan that really matters and not just one that fills in the blanks and makes a pitch for money. Don’t be ordinary…be unique. It’s what entrepreneurship is all about.

01/27/201201/27/2012

Pros and Cons of having an Angel Investors

Financing a business can be a hard task, especially if you do not have the finances to begin with. But the lack of funding should not hinder you from realizing your dream of launching your own business and becoming a successful entrepreneur. With so many financing options available to everyone, all you need to do is explore your options and see which one will suit your profile and your financial capacity. One financial vehicle worth checking out though is angel investors. When getting an Angel Investors it’s like choosing your business partner. Few questions that you need to ask yourself before deciding to go for an Angel Investors. Can you work with them? What can they give you? Is the deal they are offering sounds fair to you? Is the location accessible to you? Now, that we know the question that we need to ask ourselves. Let’s now discuss the pros and cons of having an Angel Investors.

Some advantages of having an Angel Investors are they prefer to fund High risk businesses. They want to invest huge amount money and would understandably require you to give up huge portion of the ownership and profits. Business angels make investments in virtually all industry sectors. Sector aside, however, it should be noted that what most attracts angels to an investment is high growth potential. Some Angels are also more flexible in their financial decisions than venture capitalists and they have different investment criteria, longer investment horizons, shorter investment processes, and lower targeted rates of return. Raising funds from business angels does not involve the high fees incurred when raising funds from financial institutions. Most Angels also has business experience and so they teaches young business entrepreneur to succeed. This free assistance and advice from an investor is priceless for young entrepreneurs starting out and would not normally be affordable by other means. Angels can be found everywhere unlike Venture Capital which is more formal to the market. Obtaining money from a business angel has a leveraging effect in that it makes the investee firm more attractive to other sources of possible finance. Angel investments certainly heighten venture capital interest in such ventures. They are also instrumental thanks to the loan guarantees they offer their investee firms, in addition to the money they personally invest.

The disadvantage of Angels Investors are less likely to make follow-on investments in the same firm. Unlike, venture capitalists spend around two-thirds of their funds on expansion funding of their existing portfolio firms. Angels also prefer to have a say in the running of the firm, which may force the entrepreneur to give up some degree of control and some may have limited expertise in running the particular type on investee firm they fund, making their contribution less value-added and more interfering. A very few Angel Investors may turn out to be “devils” who have self-serving motives for investment, rather than promoting the good of the firm. Unlike many venture capital firms, Angel Investors do not have the national reputation and prestige of a big-name institution, which can be crucial if the firm is successful enough to seek assistance from an investment bank for a private placement or IPO.

Angel Investors are risking huge amounts of money and would understandably require you to give up huge portion of the ownership and profits. Most business and financing experts suggest that you explore your options first and try to apply for a small business loan through government agencies like the Small Business Administration (SBA). But if you are willing to get an angel investor in, make sure that you and your financing partner iron out the details of your partnership before you finalize the business launching and take his or her money to fuel the start up. You can also check out some angel investors network to increase you’re to increase your chances of landing one angel as well.

12/30/201101/26/2012

Attracting Venture Capitalist

A venture capitalist is a person who invests in a business venture, providing capital for start-up or expansion. Venture capitalists are looking for a higher rate of return than would be given by more traditional investments. Venture capital was once known also as risk capital, but that term has fallen out of usage, probably because investors don’t like to see the words “risk” and “capital” in close conjunction. Most venture capitalists are looking for a profit of 25 percent and up. In other words, the venture capitalist may have no business experience applicable to the industry your company is involved in, and is focused on the potential rate of return your company can provide. Venture capitalist prefers to invest in entrepreneurial businesses. This does not necessarily mean small of new businesses. Rather, it is more about the investments aspirations and potential growth. Such businesses are aiming to grow rapidly to a significant size. As a rule of thumb, unless a business can offer the prospect of significant growth within five years, it is unlikely to be of interest to a venture capital firm.

There are some key points that venture capitalist look for in a business. First is your management team, it plays a vital role especially in a start up business. VCs looks into how your team manages east to difficult situation. Venture capitalists assess the strength of a management team by examining the members from three different perspectives. Venture capitalists look for professional experience. People who have a very good track record, every startup should have a marketing and operational executive. VCs also looks for admirable personal traits in the entrepreneurs such as reliability, reputation, trustworthiness, etc. VCs would like to deal with entrepreneurs who have established credibility within the industry. Venture capitalists generally tend to invest in entrepreneurs whose reputation can be verified. And lastly, VCs look for entrepreneurial abilities in the team. Heading a startups is difficult than heading a large organization it’s because of the limited resources most startup have. Management team should not only be extremely passionate and willing to persevere about an idea, but also have the ability to take a calculated risk.

Second is competitive advantage, startup corresponds to the possession of rare core competencies that creates value to customers. A company has a competitive advantage if competitors cannot easily imitate their core competences. Competitive advantage is the company’s unique specialty that no other has. VCs look at the competitive advantage a startup has before they determine the startup’s growth potential. Every entrepreneur should articulate the competitive advantage of his/her business idea before approaching investors.

Third, VCs looks for the company’s potential to the market, it defines the total sales that the startup can eventually make. The market potential really depends on the market size, market needs, and market penetrability. Market needs describes the problem the startup intends to solve. Market size describes the quantity or size of the sales opportunity for the business. Market penetrability only tells how easy it is to make sales and generates revenues. It tells marketing efforts that the startup needs to exert before it penetrates into the market. Venture capitalists closely look at the market potential for a startup idea before they decide to fund the idea. Entrepreneurs should focus on clearly defining the market before approaching investors.

Fourth is Exit Strategy, startup should also initially plan for a strategy of “cashing in” on their company allowing VCs to liquidate their shares. VCs prefers either IPO or acquisition as their exit strategies. Most VCs prefers going public however not all companies have the potential to go for IPOs. They prefer to be acquired by a bigger company.

VCs not only invest in companies, but also help companies succeed. They advise entrepreneurs and assist with customer contacts, market specific intelligence, etc. A VC is successful only if his or her portfolio companies succeed. Venture Capital fare 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.

12/22/201101/26/2012

BANK LOAN VS VENTURE CAPITAL

Bank Loan VS Venture Capital

Before you choose whether to go get a bank loan or seek for a VCs, let’s make a quick comparison on both bank loan and venture capital. Bank loan require an APR which stands for Annual percentage rate. This is an interest rate quoted by bank in their loan document. On the other hand VCs doesn’t have one, which is equity while bank is debt. The APR for small business will depend on the length of time the company has been operating, the revenue, operating profit, net profit. Consistency makes the numbers more predictable and the bankers more confident they’ll be repaid. That, of course, assumes that the market and industry are relatively stable. So bankers seek a guaranteed return on their investment (loan) in a business. Venture Capital however it’s a win or lose proposition. The either make a return because the business is successful and is later sold or it will go to the public, or they don’t because the business goes bankrupt or it shut down. VCs measure their returns as a function of the company’s future performance. Unlike in bank loan either the term or the repayment amount is known in advance.

The benefit on bank loan is that as you pay down your loan you build creditworthiness. This makes you more attractive to lenders and increases your chances of negotiating favorable loan terms in the future. While VCs can be passive or active, passive investor are willing to give you capital but will play little or no part in running the company, while active investors expect to be heavily involved in the company’s operations. Carefully consider whether or not you are compatible, as this person will own a portion of your business.

One of the most important tools when deciding on what type of business loan your company needs is research. Researching the different types of loans available to you and your company can save you money. Business loans are hard to get, but with the right combination of perseverance, passion, dedication, and conviction in your business plan, they are not impossible after all.