Venture Capital Basics, Part 1
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Dr. Brent Lundell, PhD, MBA
Mar 21, 2013, 1:40:11 AM3/21/13
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Dr. Brent Lundell, PhD, MBA
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Article Title: Venture Capital Basics, Part 1
Author: Dr. Brent Lundell, PhD, MBA
Word Count: 650
Article URL: http://www.isnare.com/?aid=1825767&ca=Finances
Format: 64cpl
Contact The Author: http://www.isnare.com/eta.php?aid=1825767
Easy Publish Tool: http://www.isnare.com/html.php?aid=1825767
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Venture capital, a subset of private equity investing, usually represents money provided by investors to small or start-up companies with perceived long-term growth potential.
Venture capital can be injected into a company at any time the company wants to expand, sell-out, or merge with another company. Often VC money is invested after the start up (called the �Seed�) phase of a business and is usually a precursor to generating a return through an IPO or trade sale of the company.
The venture capital fund makes money by investing (owning equity) in companies with potential for enormous profitability and growth; when these companies increase in profitability, the investors earn profits. Fund managers often do not invest personal money in the fund, but share proportionately in returns on fund investments.
VC funding typically occurs at the beginning of the business, as previously mentioned, but can happen whenever the company needs additional funding.
VC investors carefully look for the following characteristics when considering investing in a company:
1. Experienced, proven management team
2. Dramatic growth potential
3. Capital-efficient/scalable business model
4. Significant barriers to entry
5. Highly differentiated products or services
6. Probable exit from the business from between three-and-seven years.
An experienced proven management team is often considered the most important characteristic of an investment.
Venture capitalists invest in all stages of the business, not just at the angel and seed stages, and the concept is appealing for new companies with very limited operating history, generally too small to obtain a bank loan or other debt financing. In reward for taking on the enormous risk associated with a new business, VC firms usually require significant equity in the company � often exceeding 50 percent. In addition to equity they usually require at least one board seat as well as a strong voice in day-to-day operations.
Since the explosive growth of high technology firms beginning in the 1970s, VC firms have been looking for the next high technology wave like Google. Nevertheless VC firms have continued to invest in all areas of business including:
Aviation
Biotechnology/Life Sciences
Business Products & Consumer Products
Business Services
Chemicals
Cleantech
Cloud
Communications & Media Technology:
Communications Infrastructure
Construction
Consumer Products
Consumer Products & Services:
Digital Media
Education
Enabling Technologies
Energy
Enterprise and Infrastructure Technologies
Enterprise Software
Entertainment
Environmental Services
Financial Services
Financial Technology
Food & Beverage
Government Services
Hardware
Health Care Products
Healthcare Services
Healthcare Technology
Industrial
Information Technology
Internet Infrastructure
IT Services
Media & Entertainment
Medical Equipment
Networking
Oil, Gas, and Energy
Physical Science
Publishing
Real Estate
Retailing & Distribution
Semiconductors
Software
Technology
Telecommunications
Transportation
Travel & Hospitality
Waste & Recycling
Financing Stages
There are six stages of venture capital round funding that correspond to these stages of a companies development and capital needs:
1. Seed: Typically a small amount of money invested by either crowd funding or angel investors used to prove the idea (proof of concept).
2. Start-up: Early stage firms that have a proven concept that need funding for product development and marketing.
3. Growth: Funds used for initial sales and manufacturing (Series A Funding).
4. Second-Round: Operating funds for early stage companies that have started selling but have not yet shown a profit.
5. Expansion: Funding for expansion of a newly profitable business.
6. Exit: Funds used for the going public process (IPO) (called �4th round funding� or bridge financing).
Between the first round and the fourth round, venture-backed companies often seek (venture debt) specialized banks or non-bank lenders to fund working capital or capital expenses, such as purchasing equipment.
About The Author: Dr. Brent Lundell owns http://www.GainStreamGroup.com, a venture capital sourcing and consulting company, and is a partner in The Guinn Consultancy Group, Inc. The Guinn Consultancy Group provides a wide array of business services, including seminars, webinars, and venture capital sourcing services.
Please use the HTML version of this article at:
http://www.isnare.com/html.php?aid=1825767
*********************** ARTICLE END ***********************
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Message delivered directly to members of the group:
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*****************************************************************
Please consider this free-reprint article written by:
Dr. Brent Lundell, PhD, MBA
*****************************
IMPORTANT - Publication/Reprint Terms
- You have permission to publish this article electronically in free-only publications such as a website or an ezine as long as the bylines are included.
- You are not allowed to use this article for commercial purposes. The article should only be reprinted in a publicly accessible website and not in a members-only commercial site.
- You are not allowed to post/reprint this article in any sites/publications that contains or supports hate, violence, porn and warez or any indecent and illegal sites/publications.
- You are not allowed to use this article in UCE (Unsolicited Commercial Email) or SPAM. This article MUST be distributed in an opt-in email list only.
- If you distribute this article in an ezine or newsletter, we ask that you send a copy of the newsletter or ezine that contains the article to http://www.isnare.com/eta.php?aid=1825767
- If you post this article in a website/forum/blog, ALL links MUST be set to hyperlinks and we ask that you send a copy of the URL where the article is posted to http://www.isnare.com/eta.php?aid=1825767
- We request that you ask permission from the author if you want to publish this article in print.
The role of iSnare.com is only to distribute this article as part of its Article Distribution feature ( http://www.isnare.com/distribution.php ). iSnare.com does NOT own this article, please respect the author's copyright and this publication/reprint terms. If you do not agree to any of these terms, please do not reprint or publish this article.
*****************************
Article Title: Venture Capital Basics, Part 1
Author: Dr. Brent Lundell, PhD, MBA
Word Count: 650
Article URL: http://www.isnare.com/?aid=1825767&ca=Finances
Format: 64cpl
Contact The Author: http://www.isnare.com/eta.php?aid=1825767
Easy Publish Tool: http://www.isnare.com/html.php?aid=1825767
*********************** ARTICLE START ***********************
Venture capital, a subset of private equity investing, usually represents money provided by investors to small or start-up companies with perceived long-term growth potential.
Venture capital can be injected into a company at any time the company wants to expand, sell-out, or merge with another company. Often VC money is invested after the start up (called the �Seed�) phase of a business and is usually a precursor to generating a return through an IPO or trade sale of the company.
The venture capital fund makes money by investing (owning equity) in companies with potential for enormous profitability and growth; when these companies increase in profitability, the investors earn profits. Fund managers often do not invest personal money in the fund, but share proportionately in returns on fund investments.
VC funding typically occurs at the beginning of the business, as previously mentioned, but can happen whenever the company needs additional funding.
VC investors carefully look for the following characteristics when considering investing in a company:
1. Experienced, proven management team
2. Dramatic growth potential
3. Capital-efficient/scalable business model
4. Significant barriers to entry
5. Highly differentiated products or services
6. Probable exit from the business from between three-and-seven years.
An experienced proven management team is often considered the most important characteristic of an investment.
Venture capitalists invest in all stages of the business, not just at the angel and seed stages, and the concept is appealing for new companies with very limited operating history, generally too small to obtain a bank loan or other debt financing. In reward for taking on the enormous risk associated with a new business, VC firms usually require significant equity in the company � often exceeding 50 percent. In addition to equity they usually require at least one board seat as well as a strong voice in day-to-day operations.
Since the explosive growth of high technology firms beginning in the 1970s, VC firms have been looking for the next high technology wave like Google. Nevertheless VC firms have continued to invest in all areas of business including:
Aviation
Biotechnology/Life Sciences
Business Products & Consumer Products
Business Services
Chemicals
Cleantech
Cloud
Communications & Media Technology:
Communications Infrastructure
Construction
Consumer Products
Consumer Products & Services:
Digital Media
Education
Enabling Technologies
Energy
Enterprise and Infrastructure Technologies
Enterprise Software
Entertainment
Environmental Services
Financial Services
Financial Technology
Food & Beverage
Government Services
Hardware
Health Care Products
Healthcare Services
Healthcare Technology
Industrial
Information Technology
Internet Infrastructure
IT Services
Media & Entertainment
Medical Equipment
Networking
Oil, Gas, and Energy
Physical Science
Publishing
Real Estate
Retailing & Distribution
Semiconductors
Software
Technology
Telecommunications
Transportation
Travel & Hospitality
Waste & Recycling
Financing Stages
There are six stages of venture capital round funding that correspond to these stages of a companies development and capital needs:
1. Seed: Typically a small amount of money invested by either crowd funding or angel investors used to prove the idea (proof of concept).
2. Start-up: Early stage firms that have a proven concept that need funding for product development and marketing.
3. Growth: Funds used for initial sales and manufacturing (Series A Funding).
4. Second-Round: Operating funds for early stage companies that have started selling but have not yet shown a profit.
5. Expansion: Funding for expansion of a newly profitable business.
6. Exit: Funds used for the going public process (IPO) (called �4th round funding� or bridge financing).
Between the first round and the fourth round, venture-backed companies often seek (venture debt) specialized banks or non-bank lenders to fund working capital or capital expenses, such as purchasing equipment.
About The Author: Dr. Brent Lundell owns http://www.GainStreamGroup.com, a venture capital sourcing and consulting company, and is a partner in The Guinn Consultancy Group, Inc. The Guinn Consultancy Group provides a wide array of business services, including seminars, webinars, and venture capital sourcing services.
Please use the HTML version of this article at:
http://www.isnare.com/html.php?aid=1825767
*********************** ARTICLE END ***********************
- To distribute your articles go to http://www.isnare.com/distribution.php
- For more free-reprint articles go to http://www.isnare.com
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