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FUNDING RESOURCES: Venture Capital
Some entrepreneurs call this vulture capital because they view venture capitalists in the same light as loan sharks. Venture capitalists invest money like private investors, except they usually represent groups of individuals, pension funds and corporations.
How It Works: The venture capitalist reviews the company business plan and then decides if they want to visit the company and interview the management team. If they believe management's plan, and see the potential to go public or sell the company at some point, then they may invest. It can take from 90 days, if they love the company, to 6 months to get venture capital.
Once the venture capitalist decides to invest, they will provide a legal document to sign. This document typically provides them with controls to protect their investment. An example may be the ability to remove the president for poor performance. Venture capitalists want warrants to buy additional shares at the current price and a non-dilution clause if the owner needs to raise additional capital.
Preparation Expectations: Management needs to provide venture capitalists with a business plan containing past and present financial information, as well as future financial projections. Before meeting with the venture capitalists, ask them for references and make sure you will be comfortable with them.
Advantages: Management doesn't have to provide collateral, although most venture capitalists will expect that management have its personal cash invested. Venture capitalists have a lot of business experience and contacts.
Disadvantages: If management isn't meeting the sales plan of the company or doesn't appear to be the right group to take the company to the next level, then management risks being removed as head of the company. The president may also be forced to sell the company before she is ready.
How To Keep Them Happy: Have lunch with the venture capitalist once a month and provide them with a written report and financial statements. Don't treat them as if the only value they have is the money they're able to invest. Leverage their contacts and experience.
Internet Address: nvst.com and sbaonline.sba.gov/hotlist