Venture Capital: Raising Seed Money
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Venture Capital: Raising Seed Money – Finance – Loans
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The doors to venture capital have finally begun to swing open once again. Many venture capitalists were burned in the global recession. Since 2008, the marketplace has changed quite a bit. It is imperative that entrepreneurs understand their options, the demands they will face and the intent of today’s venture capitalist.
Venture capital comes in different forms and at different costs. Before running off to grab the necessary millions to launch the next Apple or IBM, the entrepreneur must fashion an organized plan of attack. Failure to be thorough and professional in the approach to raising venture capital has left many good ideas on the sidelines, mired in an endless pursuit of funding.
As the company prepares to launch its strategy and build a management team, conventional forms of financing are nearly impossible to obtain. The entrepreneur has five basic options in pursuing venture capital and each option comes with different specifications.
* Commercial Banks – Entrepreneurs with an existing business, a solid balance sheet and several years of verified profit and loss statements and with a deposit relationship with the lender can apply to a commercial bank for capital. The entrepreneur is usually asked to guarantee the loan with individual assets as collateral. Commercial banks rarely participate in launching a new business and the amount of the entrepreneur’s loan will be a percentage of the entrepreneur’s collateral. The new operation will also need to pay interest, which money could be better used to develop the business. When working with today’s commercial lenders, a high degree of transparency is needed. In a commercial loan, the borrower assumes all the risk.
* Investment Banking Firms – Investment bankers are also called Vulture Capitalists. Often investment bankers only work in specific industries. If the entrepreneur needs funds for expansion of a working business in one of those industries, the investment banker may consider an application for funding.
The investment banker looks for businesses with solid earnings in an industry with growth potential and a management team they like. Already with exposure in an industry, investment bankers can be extremely beneficial for a growing operation.
When applying to investment bankers, the entrepreneur will need fairly precise projections and, of course, accurate financial records. Investment bankers are primarily interested in existing operations that seek a business partner and the vulture must always see a viable exit strategy.
* Venture Capital Groups – Venture Capital Groups are high wealth investors who have determined to take certain risks. These groups are looking for the next great product, service and miracle concept. The entrepreneur with a new concept will be required to post equity in the new company as collateral, and it could be a significant amount of equity.
The entrepreneur will be forced to give up equity but will gain the funds needed to launch and a partner with proven moneymaking success. Venture Capitalists usually have specialist for each step of the company’s growth, beginning with the Early Stage and advancing to the exciting Start-up Stage.
When approaching a venture capitalist, the entrepreneur must be prepared. You may have 20 minutes to make a compelling first impression. Know your facts, have supporting projections, present your management team’s credentials and explain why there will be demand for your product.
* Angels and Sophisticated Private Investors – Angels and private investors are out there. Sometimes they are under the same roof. These participants may offer enough funding for the early stage or for expansion, but they are rarely in for the long haul. Angels and investors may require a loan structure or may want equity. Be careful because doing business with friends has destroyed many a friendship.
* Wholesale Investor Magazine and Website – Wholesale Investor Magazine and Website was created to assist entrepreneurs needing venture capital and to provide a resource for venture capitalists.
Entrepreneurs can post information, projections, concepts and charts about their venture in a private downloadable Information Memorandum format. Investors can download all information posted by the business and will be provided contact information to discuss the investment opportunity with the opportunity.
About the Author
Wholesale Investor is an IPO, Pre-IPO, Capital Raising and Venture Capital solution for Private Companies. For more details visit wholesaleinvestor.com.au
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Venture Capital: Raising Seed Money
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