Category: Venture Capital

8 Tips for Small Businesses to Avoid Liquidation

Smaller companies are far more exposed to liquidation, which is often due to serious debt problems, especially when the company has just commenced trading. There are ways an owner of a small company can avoid the likelihood of liquidation by using some basic debt management tips like the following.

Tip 1 Buy Used Equipment

A small company can get a step ahead quickly by purchasing second hand equipment. This could be anything from office furniture to computers to tools or any other equipment that is essential to ensure a successful start up. This can save a business 75 percent in cost terms.

Tip 2 Savings Should be Secured

An astute business person will always have personal savings set aside before venturing into business but these should only be used out of sheer desperation. If you need to put a little extra money into some enterprising aspect of your business which you know will be a success then you can always pay it back later.

Tip 3 Use Friends and Family

This depends, of course, on your relationships with the people around you, which are normally your family and friends. They may be interested in helping to finance you, especially if you have been refused backing from a financial institution. It is quite surprising how your closest contacts might have faith in your impending success.

Tip 4 Use Angel Investors

These are eager investors who will want to gain a share of your company if they provide equity for it and they may also want some operational control, too. There are databases on-line of people who have money available that they wish to invest in a viable enterprise.

Tip 5 Conduct Market Research

The greatest reason for company liquidation is lack of market research into the position of the product being marketed in the market place. Relevant market research provides notice of any pitfalls that may occur when marketing your product.

Tip 6 Keep up your Personal Income

It is not uncommon for those who are starting companies for the first time to still work in their usual occupation. This means they still have an income coming in while their business is establishing itself. It gives you a chance to build up a cash reserve, just in case you need it. Forgoing your job can take place once you start to reap reliable cash benefits from your business.

Tip 7 Be Frugal on Equipment Requirements

A small business may not require a full range of equipment straight away or even office supplies. Orders should be kept to a minimum until business picks up.

Tip 8 Be Flexible

A small company means flexibility is needed. For example, it may mean you find yourself storing your product at home or in a storage unit and then selling your product on-line. It is much harder to run up serious debts when you operate an on-line business as there is much less capital investment required. Expansion can be invested in if the business prospers.

Venture Capital Financing Tips

Few words carry more fascination to an entrepreneur than “venture capital.” The two words may mean different things to different people. Across the world, venture capital means the freedom to have the money to turn your idea from the workbench or the lab into reality.

In short, venture capital is money designed for high-risk investment in startup enterprises. It involves high risk for the investor in beginning ventures or later stages to continue expected progress and growth. It also holds out the possibility of large profits in exchange for the risk of investing.

Venture capital differs from standard bank financing. Instead of paying back a conventional loan within a designated time period at a predetermined rate of interest, venture capital fund investments are repaid through a negotiable percentage of the entrepreneur’s stock in the business over three to seven or eight years as the company succeeds and grows. In most cases, a successful initial public offering (IPO) will allow both investor and entrepreneur to prosper by bringing the company’s stock to the public market.

Usually, the terms of ownership are negotiated and predetermined before a venture investor will conclude the financing.

How a venture capitalist chooses to structure his investment depends on the style and track record of the venture fund. It can be straight equity, a combination of equity and loans, or a sliding scale of reversion from majority control of the entrepreneur’s stock to minority ownership upon achievement of certain milestones. Sales and revenues or an anticipated (IPO) are perennial favorites.

The advantages of venture capital for an entrepreneur are quickly apparent. There is usually no requirement to repay a bank loan. The venture capitalist and the entrepreneur assume some of the risk of the new business together. Better, there is usually no requirement to tie up funds dedicated to interest. That factor alone can be used to propel the business forward.

Further, the venture capital firm can often bring much needed expertise to a new entrepreneur’s business. Beyond capital, knowledgeable and well-connected investors can further lend invaluable knowledge to the startup firm.

Sharing ownership and control of the entrepreneur’s business is often considered the chief disadvantage of the involvement of venture capitalists. This is often the main reason for lack of success for small, inexperienced entrepreneurs, resulting in a failed deal.

Before even considering the small, but powerful area of venture capital, the entrepreneur must know and understand two chief areas of concern

First, the entrepreneur’s industry expertise and background should be flawless. It should be on the cutting edge of industry development.
The startup company must understand the rigors of successfully running a business, as well as marketing, no matter its industry.
It should show a third-party perspective to prove the need for its product by the industry or retail consumer.
Finally, it should clearly demonstrate the fact that the proposed business can grow and achieve profitability in record time.

Secondly, the entrepreneur should consider the most appropriate “fit” with the chosen venture firm. That requires an understanding of the venture firm’s preferred emphasis on investment, the expected time frame for funding, its venture partners, successful previous funding and desired geographic locale.

The job of choosing a venture capital source is far from simple.

It runs the gamut from your wealthy cousin who has always liked you and has just inherited a few hundred thousand or millions of dollars. He might be one of a handful of people who know you directly and can serve as “seed capital” funders for you and your enterprise.

Despite a lingering slow-down in the worldwide economy, there is always plenty of money available for the entrepreneur with a well-thought-out novel idea. The only thing required is more attention to research and facts.

Five Tips for Aspiring Young Entrepreneurs

There are two basic types of entrepreneurs-those who have an idea for a business and as a result become entrepreneurs, and those who know they want to be entrepreneurs but are in search of the right idea. Most young entrepreneurs fall into the latter category, and waiting for that one great opportunity to materialize can take time and be incredibly frustrating. True entrepreneurs, however, are the sort of people who make things happen, and there are several things you can do to make the most of your time and prepare yourself for that moment what the right opportunity presents itself.

1. Get an entrepreneurial education-Entrepreneurs with four or more years of college education have far lower failure rates than average, and taking courses in entrepreneurship, finance, and marketing can boost your chances of success even further. While you’re at college, be sure to take a few science and technology-related courses, if for no other reason than to network. High-growth ventures are generally hi-tech in nature, and if you’re not an inventor yourself than college is a great place to meet and partner with one.

2. Talk to experienced entrepreneurs-While a college education is extremely beneficial, one drawback is that the courses tend to be overly theoretical, even in business school. But there’s no teacher like experience, so try to have lunch or coffee with as many experienced entrepreneurs as you can find. Down the line, they may become potential investors for your future ventures, but for now just ask questions and listen to them talk about their experiences. Most people like to be asked for advice, and successful entrepreneurs generally want to help the next generation. Just remember to be respectful of their time.

3. Work as an intern for a startup or venture capital firm-Try to leverage your relationships with more experienced entrepreneurs into a summer internship at a startup company or a venture capital firm. Even if it’s unpaid, the experience is invaluable. Working for a startup will give you a feel for the challenges involved in launching a new venture, while a venture capital firm will give you exposure to many different business plans and insight into how investors analyze business opportunities. Do both if you can.

4. Enter a business plan competition-Even if you haven’t hit upon that great idea yet, enter one anyway. There’s no better way to learn the mechanics of writing a business plan and obtaining funding, and the feedback you receive and the contacts you make can be extremely valuable in the future.

5. Research trends and practice spotting them-Great business opportunities don’t just fall into your lap. They generally involve spotting a trend early and figuring out a way to exploit it. So pick an industry or area of expertise and then immerse yourself in it. Try to predict how others will capitalize on emerging opportunities, and then watch and learn which ideas succeed and which ones fail. Eventually, you’ll get a feel for the market, and the right idea will come to you.

The time to start learning how to be an entrepreneur isn’t when you decide to launch a business, but rather many years before. Entrepreneurship is a complex task, one that requires thousands of hours of experience to master, just as with any other vocation. The sooner you get started, the sooner you’ll be ready.

7 Steps to Attract Venture Capital Through Social Media

The Internet and Social Media are moving entrepreneurs closer and closer to sources of start-up capital. Whereas in days past your funding relied on knowing someone, or knowing someone that knew someone–today it is about getting to know someone.

Listen First

Angel Investors, Venture Capitalist, and Private Equity principles are increasingly Web social. They have blogs, Twitter, and follow lots of folks on Friend Feed. Networking was always a core principle in their success, but now they can scale. This means not only can they meet and follow more people and opportunities, but you can also listen to what they find compelling.

Following and watching investors can quickly focus you in on who and how to target your pitch. Or, even give you ideas for creating a new start-up.

Join the Conversation

Now that you have a good idea of who you should be talking to and what they are interested in it is time to join the conversation.

Blasting a strange VC a presentation is probably not going to be terribly productive. However, engaging intelligently in their discussion will. Here are some easy ways to join the conversation:

Comment on their blog
Answer their Twitter questions
Discuss topics on their Friend Feed
Comment on blogs they read
Twitter people they follow

Add Value to the Discussion

Venture capitalist are an inherently curious sort. If you can help feed or answer their curiosity you will draw their interest. Inherently your expertise will surpass that of most venture capitalist–that is why they would invest in you–so help them out.

These are a few sure fire attention grabbers:

Talk about the market you are in
Talk about what causes your market to move up or down
Talk about their portfolio companies
Talk about what one of their companies should do next

Remember, don’t just target the investor or VC directly engage with their colleagues, portfolio companies, competitive companies, and their entrepreneurs.

Tell Your Story

Now that you are in the conversation and attracting (even passive) attention from investors. Tell your story. Talk about your projects, your ideas, and your starting up. Keeping a bright idea under a bushel basket attracts about $0.

Don’t forget the little details. VCs like to hear what you spend money (talk about office leases, chair purchases, Mac or PC), how you design teams (talk about titles, office design, individuals), and how you fail (talk about downtime, blown sales, flubbed marketing ideas).

Manage Your Young Brand

Do you remember me saying that venture capitalist were inquisitive? That means you need to have a place for them to lurk around and learn more about you. Make sure you have a website or blog that talks about your start-up. It should look professional and be clear about your unique value proposition.

This should be the link in all your social profiles and blog comments.

Be Ready

Like curiosity, investors are notorious for short attention spans too. If they tap you on the shoulder you probably only have one brief shot at tipping them. Have the following ready at all times:

5 minute elevator/telephone pitch
1 page executive summary
1 page financial summary (projection & ask)
10 slide PowerPoint deck
1 URL with social media pitch