Reader Question - Finding Investment Capital
Good evening, my name is Chris and I am looking for some information on angel investment or venture capital for a future investment. I am looking at purchasing a bar/restaurant in Dutch St Maarten. The business is already up and running and has been very sucessful for a many number of years. The business is being sold well below market value and is not currently on the market. I am looking at moving on this business very quickly because once it hits the market it will not be on there very long. I am a little bit shy on the total investment which is why I am contacting you. Any information you have would be of great help. And if you are unable to help, any information you have on anyone who would help would be greatly appreciated.
Thanks for your help.
Chris
Hi Chris,
There are a number of ways to valuate a business. The model we typically use is discounted cash flow (DCF). In DCF, you take an estimate of the company's future earnings and discount it back to today to get the present value. Investors will often add a risk premium as well as a premium for being a private company.
The restaurant business is not one that lends itself to venture capitalists very well. VCs are looking for an average return of 30% per year which is hard to create in restaurants unless you are planning very serious expansion.
It could be of interest to the right angel investor. You would have to show what their return on investment would be and how quickly they will be able to recoup their investment. Other elements to keep in mind are how they might be able to exit the investment and how involved do you want them to be in the management of your business. For a more complete guide on Angel Investors visit: http://www.evancarmichael.com/Angel-Investors/index.html
If the business has been successful for a number of years they should have a healthy balance sheet and historical financials. This could lend itself to a leveraged buyout situation where you finance the acquisition through a heavy debt load. The cash flow would obviously have to be enough to cover your debt payments. You can discuss this with your bank as well as work with private firms provided that the numbers make sense.
Good luck!
Evan.
Thanks for your help.
Chris
Hi Chris,
There are a number of ways to valuate a business. The model we typically use is discounted cash flow (DCF). In DCF, you take an estimate of the company's future earnings and discount it back to today to get the present value. Investors will often add a risk premium as well as a premium for being a private company.
The restaurant business is not one that lends itself to venture capitalists very well. VCs are looking for an average return of 30% per year which is hard to create in restaurants unless you are planning very serious expansion.
It could be of interest to the right angel investor. You would have to show what their return on investment would be and how quickly they will be able to recoup their investment. Other elements to keep in mind are how they might be able to exit the investment and how involved do you want them to be in the management of your business. For a more complete guide on Angel Investors visit: http://www.evancarmichael.com/Angel-Investors/index.html
If the business has been successful for a number of years they should have a healthy balance sheet and historical financials. This could lend itself to a leveraged buyout situation where you finance the acquisition through a heavy debt load. The cash flow would obviously have to be enough to cover your debt payments. You can discuss this with your bank as well as work with private firms provided that the numbers make sense.
Good luck!
Evan.
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For more information, visit www.EvanCarmichael.com. |
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