How can Venture Capital Add Value to your Company?

The Venture Capital & Entrepreneur Link

Entrepreneurs are a special breed of people. They dare to take ideas and turn them into a reality; to create something out of nothing. They are driven by passion and dedication. Being an entrepreneur is about sacrifice. They work long hours and often put all on the line. And it works.

Entrepreneurs have proven to be the movers and shakers within the business world and are also some of the richest people within society. Some of the biggest companies that have emerged in the last decade have been born of entrepreneurs. Dell, Ebay, Yahoo, Microsoft, Home Depot, Google, Crate and Barrel, FedEx, Vonnage and the list goes on. Every single one of these companies started with a single entrepreneurial idea and a passion to create something new. Since then, these companies have changed the way we shop, communicate, surf the web, buy computers, and exchange information. They have literally changed the world and cashed in big along the way. These entrepreneurs all have one thing in common: they used venture capital or angel investment to get their ideas off the ground.

Venture Capital & Angel Investors: Adding Value To Your Company

Sweat equity and perseverance go a long way but they can only get you so far. What you need to make the next step, whether you are a start up or a growing company, is funding. Plain and simple. You need venture capital or an angel investor to make your vision and company grow. There are hundreds of good entrepreneurial concepts that never see the light of day because they suffer from lack of business funding. Think of this lack of financial backing as a disease. The cure is funding, such as venture capital or angel investment.

Venture capital is capital provided by external investors for financing of new, growing or struggling businesses. Venture capital investments generally are high risk investments but offer the potential for above average returns. A venture capitalist (VC) is a person who makes such investments.
A venture capital fund is a pooled investment vehicle (often a partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. For aspiring entrepreneurs looking to locate and secure venture capital they have the option of seeking the support of a mentor capitalist. A mentor capitalist is an expert not only in acquiring capital but can also provide support and direction to early start-ups.

Venture capital general partners (also known as “VCs”) may be former chief executives at firms similar to those which the partnership funds. Investors in venture capital funds are typically large institutions with large amounts of pecuniary resources. Other positions at venture capital firms include venture partners and entrepreneur-in-residence (EIR).

Venture partners “bring in deals” and receive income only on deals they work on. EIRs are experts in a particular domain and perform due diligence on potential deals. EIRs are engaged by VC firms temporarily (six to 18 months) and are expected to develop and pitch startup ideas to their host firm (although neither party is bound to work with each other).

Venture capital is not befitting for many entrepreneurs. Venture capitalists are very selective in determining what to invest in. They are most interested in enterprises with high growth potential, as only such opportunities are likely capable of providing the financial returns and successful exit event within the required timeframe that venture capitalists expect. Because of these strict requirements, many entrepreneurs seek initial funding from angel investors—affluent individuals who dispense capital for business start-ups, usually in exchange for ownership equity.

Investments by a venture capital fund can take the form of either preferred stock equity or a combination of equity and debt obligation, often with convertible debt instruments that become equity if a certain level of risk is exceeded. The common stock is often reserved by covenant for a future buyout, as VC investment criteria usually include a planned exit event, normally within three to seven years.

Harvesting transpires when at or after an exit event, venture capitalists labor to sell their stock, warrants, options, convertibles, or other forms of equity. Venture capitalists know that not all their investments will pay off. The failure rate of investments can be high. When a venture is unsuccessful, the entire funding by the venture capitalist is written off.
Many venture capitalists try to mitigate the risk of failure through diversification. They invest in companies in different industries and different countries so that the risk across their portfolio is minimized. Others concentrate their investments in the industry that they are familiar with.

For a company to gain easier access to venture capitalism, they should obtain 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.