Venture,Capitalists,Venture,Ca finance, share, loan Venture Capitalists
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Venture CapitalistsBy William CatePublished March 1998[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]They invest in less than 1% of the companies they review. Your oddsof raising money at the race track or in Las Vegas are better than yourodds of finding a venture capitalist. I don't believe that it's worth yourtime and money to seek their investment in your company.Venture Capitalists aren't Fairy Godmothers. If you won't give up60%-70% of your company for the venture capital investment, you'll neverinterest a Venture Capitalist in your company. For most business owners, acontract with a Venture Capitalist is a deal with the devil.Let's assume that your company is a winner of the Venture CapitalLottery. You'll become a minority shareholder in your company. Your jobwill be to make your company a business success.The Venture Capitalist's first goal is to recover their investmentin your company. The VC expects to recover their risk capital within twelvemonths. They'll do it by appointing several financial sales people to topmanagement positions. This VC management group will prepare your companyfor its IPO. They'll encourage accredited investors to buy half the VCstock in your company at double the price paid by the VC. Within a year,the VC has recovered their risk capital and still owns 30%-35% of yourcompany. It takes between 25% and 40% of the VC's investment in yourcompany to allow the VC to breakeven on their investment.No one risks money to break even. The VC's goal is to do an InitialPublic Offering and take your company public. Once your company starts totrade, they'll sell their 30%+ stock in your company. The good news is theIPO will raise more money for your company. The bad news is the IPO shareswill further dilute your ownership of your company. As a public company,you'll probably now only own 10% to 15% of your company.It costs money to do a successful IPO. You'll find that those VCFinancial Managers will divert your advertising budget into generaladvertising that acquaints potential stock buyers with your company. Itdoesn't bother the VC that none of the potential stock buyers are buyers ofyour product or service. The axiom is that when investors recognize thename of your company, they'll buy your stock. It's the VC's stock, not thecompany's product or service that is being sold.It costs money to do an IPO. That money comes from your company'scash flow. Until you receive the proceeds from the IPO, you won't have themoney to expand your business. If the cash flow isn't adequate to pay theIPO costs, expect the VC to issue more stock and dilute your ownershipfurther.You can invest in a search to find a Venture Capitalist. I don'tthink your VC strategy is sound. You are betting against the odds thatyou'll find a VC. If you find a VC, you'll lose control of your company.When your company goes public, you could find that your insider group owns less than 15% of your company's stock. If you think that a VC strategy is a winning strategy, I wish you luck.To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/] Article Tags: Venture Capitalist
Venture,Capitalists,Venture,Ca