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How does my firm attract Venture Capital?

Guest post by: Stan Prokop

Article Overview: The article discusses facts regarding venture capital firms, who they are, and what they are looking for in an investment .

How does my firm attract Venture Capital?

Business owners and financial managers have three choices when they require business funds . Those choices are as follows :

Bank - operating lines / term loans

Leasing / Debt Issue

Arranging new equity - Venture Capital

Venture capital is of course new funds that are injected into the company with that investor, or investors, become new additional owners in the firm . The investors assume business risk, as in pure theory they can lose all their equity investment - they have no collateral as do the banks , lessors, bondholders, etc.

Most venture capital firms tend to therefore make investments in a company when they are past the pre-revenue stage and are getting some real business traction re: sales and profits . They normally like to come in on second and third round financings in an attempt to ensure their ' bet ' is a safer one .

We spoke of the venture capital firm taking a higher risk - in exchange for that they want a higher reward .

Venture capital flows to small firms and large firms alike - we of course hear on the financial news all the big name deals, but a number of venture and private equity firms invest in smaller transactions everyday . Many people of course know Federal Express . That firm started when a VC firm backed their initial investment of planes for their fleet .

Where do we find those venture capitalists ? The term is broad in nature - the venture capitalists consists of wealthy high net worth investors, government chartered investment institutions , as well as , of course large banks and insurance firms that have deep pockets for large transactions . Many of the large banks and financial institutions have internal organizations or subsidiaries that separately deal with debt and equity , or combinations of both .

Private venture capital firms are the ones that seem to get most of the publicity . These tend to be huge funds that originated from family fortunes . The firms have strong reputations and long histories and track records . They might focus on different markets, such as technology, healthcare , etc .

Many of the worlds larger corporations in fact have venture capital offshoots . They make investments in related fields that they know about and have knowledge of .

Business owners who look for venture capital should know the following :

Venture capitalists look for strong management teams above all , coupled with experience of course and integrity . Naturally every VC wants to hit a home run, so they look for businesses with great growth potential . Once the investment is made it will need to be realized down the road - the VC and the business owner will have to agree on an ' exit strategy '.

Business owners are cautioned to deal with firms who are looking to make investments in their industry, and be aware of what the minimum and maximum investment sizes are .

Venture capitalists will gravitate towards firms that can properly demonstrate their history and potential , their markets, competition, and their financial structure . These information should be top of mind for any firm looking to attract investment capital .

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Article Tags: business financing, venture capital



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