More History: VC View on Investing, Due Diligence, And Investor Involvement
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Dr. Brent Lundell, PhD, MBA
Mar 21, 2013, 2:20:03 AM3/21/13
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Dr. Brent Lundell, PhD, MBA
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Article Title: More History: VC View on Investing, Due Diligence, And Investor Involvement
Author: Dr. Brent Lundell, PhD, MBA
Word Count: 877
Article URL: http://www.isnare.com/?aid=1826160&ca=Finances
Format: 64cpl
Contact The Author: http://www.isnare.com/eta.php?aid=1826160
Easy Publish Tool: http://www.isnare.com/html.php?aid=1826160
*********************** ARTICLE START ***********************
Although Ronald Reagan expanded the economy through governmental defense spending from the middle to the end of the 1980s, venture capital profits declined through the mid-1990s and a new wealth generator for venture capitalists replaced funding start-up companies�. the Leveraged Buyout.
For definition, a leveraged buyout (LBO) is the purchase of a company with a combination of debt and the target company�s assets, which might include airplanes, real property, and/or cash flow. All of these are used to repay the debt taken out to buy the business. (The debt, much as in real estate when a 90/10 loan is taken out on a rental property, is considered the leverage to buy the business).
Beginning in about 1995, VC money was being sought by and was beginning to �feed� companies creating internet businesses.
Functioning on what was to be known as �the biggest fool theory�--- where the last person to own the stock loses all his investment--- companies went public with enormous valuations without ever having sold one product. Instead, they were selling blue sky, or opportunity.
By the turn of the century, in the year 2000, the investing world had started to realize that technology and internet companies were yielding either low or non-existent returns and began dumping these stocks in favor of better investment opportunities---leading to what became known as the bursting of the �dot-com bubble.� The sell-off caused VC firms to experience net losses on their internet and technology companies and the private equity business stalled, yet again. Cyclically, VC again must seek out opportunity.
Since 2005, however, VC funding has remained fairly constant even with the market decline of 2008-2010. This window of lending seems to have established itself and seems key to some serious investment and critical infrastructure development.
Let�s ExamineThe VC View on Investing
With very few exceptions, VC firms care where the money is invested as long as it does not violate their moral principles.
Given that moral reality, VC firms are interested in:
1. How much they must invest.
2. When they will get that money back; and
3. How much return they are going to get on their investment.
Venture capital is money invested in a company in exchange for company equity. The venture capitalist earns money from either:
1. Cash flow from the business when it becomes profitable and receives dividends;
2. When the stock is sold privately, and/or
3. After the company goes public through an IPO.
Most VC firms are not out to save the whales, to feed the starving children in Biafra, or stop the war in Uganda. Instead they want returns for their investors and on investment capital expended-- and, as mentioned, follow their personal values clearly stated by the company in doing so.
Selecting a Business to Fund
As previously mentioned VC investors carefully look for the following characteristics when considering investing in a company:
1. An experienced, proven management team, with past demonstrable results.
2. Dramatic growth potential for the concept being funded.
3. Capital-efficient/scalable business model which has been fully vetted and approved;
4. Significant barriers to entry
5. Highly differentiated products or services that are compelling and unique;
6. A probable exit from the business in between three and seven years, post-funding.
Interestingly enough, in a survey of over 100 VC firms, it is estimated that the average clock time a VC firm Project Screener invests only about eight minutes on a project before he or she moves to the next project submitted for review. Further, a venture capitalist may screen 400 projects before it ever funds one that it is interested in moving forward to the due diligence phase.
Clearly, the key six points listed previously must be clearly addressed in a business proposal, or the proposal will be thrown into the �round file� faster than can be imagined.
Due Diligence and Business Development
Venture capitalists are careful and do a great deal of detailed research in both the people and the potential business opportunity itself before investing any money. They do this because:
1. They want return of their investment,
2. They want return on their investment, and
3. If they invest in just any project, they may lack insufficient capital to invest later on, in a potentially more profitable opportunity (aka opportunity cost) so they must be certain that each project has a very high probability of success, as well as high profits.
VC firms usually invest in areas in which they have expertise. The expertise may come from VC firm previous experience with other similar investments, or from the VC staff itself, who may have successful business experience in the business being considered for investment.
VC firms universally want at least one seat on the Board of Directors in the businesses they are investing in, depending on how much money has been invested, and are often highly involved in business development because of their successful past similar-field experience.
A business owner should expect this level of involvement and interest from a VC investor.
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=1826160
*********************** 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
Message delivered directly to members of the group:
publish-the...@googlegroups.com
*****************************************************************
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=1826160
- 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=1826160
- 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: More History: VC View on Investing, Due Diligence, And Investor Involvement
Author: Dr. Brent Lundell, PhD, MBA
Word Count: 877
Article URL: http://www.isnare.com/?aid=1826160&ca=Finances
Format: 64cpl
Contact The Author: http://www.isnare.com/eta.php?aid=1826160
Easy Publish Tool: http://www.isnare.com/html.php?aid=1826160
*********************** ARTICLE START ***********************
Although Ronald Reagan expanded the economy through governmental defense spending from the middle to the end of the 1980s, venture capital profits declined through the mid-1990s and a new wealth generator for venture capitalists replaced funding start-up companies�. the Leveraged Buyout.
For definition, a leveraged buyout (LBO) is the purchase of a company with a combination of debt and the target company�s assets, which might include airplanes, real property, and/or cash flow. All of these are used to repay the debt taken out to buy the business. (The debt, much as in real estate when a 90/10 loan is taken out on a rental property, is considered the leverage to buy the business).
Beginning in about 1995, VC money was being sought by and was beginning to �feed� companies creating internet businesses.
Functioning on what was to be known as �the biggest fool theory�--- where the last person to own the stock loses all his investment--- companies went public with enormous valuations without ever having sold one product. Instead, they were selling blue sky, or opportunity.
By the turn of the century, in the year 2000, the investing world had started to realize that technology and internet companies were yielding either low or non-existent returns and began dumping these stocks in favor of better investment opportunities---leading to what became known as the bursting of the �dot-com bubble.� The sell-off caused VC firms to experience net losses on their internet and technology companies and the private equity business stalled, yet again. Cyclically, VC again must seek out opportunity.
Since 2005, however, VC funding has remained fairly constant even with the market decline of 2008-2010. This window of lending seems to have established itself and seems key to some serious investment and critical infrastructure development.
Let�s ExamineThe VC View on Investing
With very few exceptions, VC firms care where the money is invested as long as it does not violate their moral principles.
Given that moral reality, VC firms are interested in:
1. How much they must invest.
2. When they will get that money back; and
3. How much return they are going to get on their investment.
Venture capital is money invested in a company in exchange for company equity. The venture capitalist earns money from either:
1. Cash flow from the business when it becomes profitable and receives dividends;
2. When the stock is sold privately, and/or
3. After the company goes public through an IPO.
Most VC firms are not out to save the whales, to feed the starving children in Biafra, or stop the war in Uganda. Instead they want returns for their investors and on investment capital expended-- and, as mentioned, follow their personal values clearly stated by the company in doing so.
Selecting a Business to Fund
As previously mentioned VC investors carefully look for the following characteristics when considering investing in a company:
1. An experienced, proven management team, with past demonstrable results.
2. Dramatic growth potential for the concept being funded.
3. Capital-efficient/scalable business model which has been fully vetted and approved;
4. Significant barriers to entry
5. Highly differentiated products or services that are compelling and unique;
6. A probable exit from the business in between three and seven years, post-funding.
Interestingly enough, in a survey of over 100 VC firms, it is estimated that the average clock time a VC firm Project Screener invests only about eight minutes on a project before he or she moves to the next project submitted for review. Further, a venture capitalist may screen 400 projects before it ever funds one that it is interested in moving forward to the due diligence phase.
Clearly, the key six points listed previously must be clearly addressed in a business proposal, or the proposal will be thrown into the �round file� faster than can be imagined.
Due Diligence and Business Development
Venture capitalists are careful and do a great deal of detailed research in both the people and the potential business opportunity itself before investing any money. They do this because:
1. They want return of their investment,
2. They want return on their investment, and
3. If they invest in just any project, they may lack insufficient capital to invest later on, in a potentially more profitable opportunity (aka opportunity cost) so they must be certain that each project has a very high probability of success, as well as high profits.
VC firms usually invest in areas in which they have expertise. The expertise may come from VC firm previous experience with other similar investments, or from the VC staff itself, who may have successful business experience in the business being considered for investment.
VC firms universally want at least one seat on the Board of Directors in the businesses they are investing in, depending on how much money has been invested, and are often highly involved in business development because of their successful past similar-field experience.
A business owner should expect this level of involvement and interest from a VC investor.
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=1826160
*********************** 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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