Return to 143 articles to start your own home based business opportunity directory Attract The Perfect Investor For Your Business by Ted Wooley Traditional Venture Capital The phrase “traditional venture” refers to the established firms that pool money from many sources for the purpose of pursuing high-risk, high-profit investments in young companies. The strategy employed by capitalists here is to find companies poised for explosive growth. Once found, they will purchase from 20 to 70 percent of the company’s equity. Most do not want to participate in the daily control of the company, but rather act as advisors to steer the company in establishing its niche. The exception would be if the ownership was incompetent; then, the investors would naturally look to assume control to protect their investment. Venture capitalists seek high-risk investments, and as such, investors realize that most of their gambles are not going to pay off. This means they need to see realistic (in their mind) projected returns of 5 to 10 times their investment in just three to five years. If all works well for the firm, the 10 to 20 percent of companies that are outstanding successes makes up for the losses on the remaining percentage. Historically, this formula has provided venture capitalists with overall annual returns of about 25 percent. In addition to this high return, most venture firms want to be out with their investment and profits in 3 to 5 years. This is accomplished via an exit strategy. Virtually no investor, whether firm or individual, wants to get married for life. The maximum potential for profit, as a percentage, is during the early years. Once that window has narrowed, they will want the money back to start again somewhere else. The exception to this would be for second and third stage funding. An estimated $3 billion is committed annually through the hands of these investment financiers. The minimum amount these firms are willing to invest can be as little as $50,000, but most look for higher amounts, with many starting at $500,000 or more. As with most forms of capital, access is largely dictated by the current economy. Some prefer to provide seed money for start-ups, while others focus on later stages of funding or leveraged buyouts. Some firms only focus on specific industries or geographic areas. All firms will provide you with a “fact sheet” with information about the types of businesses they have financed in the past. Qualifications and competition are stiff for venture capital. Here are some key areas these investors consider: Management The key here is “TEAM.” They want to see a well rounded management team with experience in all areas of business, including marketing, administration and manufacturing. Each key player should head a different area of the business. The ideal team has 3 or 4 players. Product The most attractive products are ones that already have an established market, but are one or more years ahead of competitors. This competitive edge can be derived from innovations in design which make it superior, or innovations in manufacturing which make it cheaper, or, as is the trend lately, innovations in marketing. Return on Investment Traditional capitalists don’t want a long-term relationship. They want to fund your start-up or growth in exchange for equity (a lot of equity), then sell that equity for a huge profit when the company is more valuable in 3 to 7 years. There are two “liquidity events” by which your investors can convert equity into cash. One is by selling out to the management team (you). The other is to take the company public and sell their shares through the market. Your growth projections will need to make this feasible. Private Venture Capital Realistically, only a small number of the individuals reading this article are viable candidates for venture capitalists. The vast majority are better suited for the community of individual venture capitalists known as angels. Angels are responsible for financing about 95 percent of all start-ups that receive outside funding. They have the most diverse resources. Angels have individual standards, preferences, understanding and objectives. Spend enough time with these people and you will know that there an angel for everyone. Why Angels Take Risks Profit is not always the primary motivation. If you can discover an angel’s underlying desires, you can greatly improve your odds of closing the deal by building on those points most important to him or her. Motives might include: Ego – Their desire to own part of a highly visible business. Sense of Obligation – Their desire to help someone else make it; often, as someone once helped them. The Excitement – Their desire to escape the boredom of their job and the rush from seeing a high-risk investment hit pay dirt. Community Development – Their desire to see more jobs or beneficial services brought to the community. HBM Lecturer and author Ted Wooley also serves as president of the Horizons Unlimited Group, a seminar/publishing company he helped found in 1987. HUG's popular line of resources know as the "Insider Reports" is tailored to fill the personal and business financial information needs of the budding entrepreneur. Visit HUG's web site at www.InsiderReports.com for 1,200+ free small business reports or call 888-985-8585 for a free catalog."

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