Venture Capital and Investing in Business Start-Ups

The Best Christmas Gift, Venture Capital

While the gift of an organ for someone dying is a fantastic gift, and an airplane with good weather is a huge gift if one is caught in "Denver's Weather". One Santa that was on TV tonight gave away perfectly operating used cars for women with kids and inadequate income to buy a decent running car. Another type of gift can be one that returns "Thanks" forever; the gift of venture capital.

I agree, this is pretty "me-me!" or perhaps it can be considered selfish. It also might be neither. One could discover, after reading books on start-up financing, that, excluding those with savings in the bank, fewer than one in one hundred "ideas for a new business" ever get financed. OK, boo hoo. We can't all get what we want. True. But what are the consequences of not getting financed and what are the risks to the funders? Let's examine this perhaps

very risky field of venture capital and see if there are any ways of making investing, FOR THE investor, safer than a Vegas crap shoot!?

Every book on venture capital indicates that fewer than one in one hundred proposals are considered seriously and when said single proposal clears the hurdles of the panel at a VC firm, it is determined that said investment must be So good that it returns a minimum of 30% per year so that the VC firm earns back all the money it invested in bad deals throughout the year. While insuring good deals makes excellent business sense, the way this is accomplished also costs those other "visionaries" [new entrepreneurs] their funding and thus, their dreams. You see, it seems that if one VC firm turns down a deal, that some how other VC firms hear about the turn downs and usually, the entrepreneur tuned down never sees an offer of VC FOR this deal-ever.

That seems a bit cold. It is but that is not the worst part of it. When a VC in his office turns down a deal [remember, 99 out of a 100 are turned down], the VCer does not tell the entrepreneur why his deal is being turned down-so, the entrepreneur spends time and more time and more time seeking funding-with no idea that he needs to modify his presentation or

idea in any specific way to make it viable to the Venture Capitalist.

Something else is a component to this process that TO THIS writer, is "negative" or "sloppy" or better yet, "inefficient." That is, IS there a way to partially or totally insure the risk that the Venture Capital firms feel that attaches to any one venture proposal? This writer claims the real answer is yes! This writer claims that a proposal can be insured 95% and that does not even include the insurance the Small Business Administration offers loans to banks who are ready to otherwise lend on a proposal.

Let's both tippy toe and slog through this idea of risk, return per deal, and the lives that are both positively affected as things are done NOW and as they could be with a change in approach to providing venture capital!

There are over 100 venture capital firms in the world. There are also over 25,000,000 firms started annually world-wide. Thus, most firms are started with personally procured money [family and friends] or bank accounts are emptied to fund ventures.

Now, let's do the hidden math! According to research conducted by most university schools of business and the SBA, seventy percent of American adults think of having their own business. We have perhaps 320,000,000 million residents and of those perhaps 312,000,000 legal ones. Of those perhaps fifty percent are adults. Thus, with 50% of 312,000,000 being 156,000,000 adults, only in five ever get their business started!

This batch of statistics presents two negatives that can be overcome; first, some fantastic ideas never get off the ground, generating waste and lost opportunities. Instead of days or weeks or even months, it instead takes years or decades for innovations to make it to the market place and this time delay negatively affects other things. If an innovation saves 1,000 people $1,000 when it does come out, and it comes out five years after it could have come out, that $1,000,000 was spent less effectively and the person with the innovation is forced to wait and do other things. In actuary sciences, there are formulas that denote financial waste to things that are yet to come!

Let me show this via a PERT program and CPM, another management program. A PERT Program [Program Evaluation and Review Technique] depicts actions that must or can be taken to best use CURRENT resources and processes. Using postal mail, millions of companies had until the internet came out, overnight shipping and the post office and few other options to get products to market or data to innovators. When the world wide web became available,

this time frame dropped to seconds. Entire new "worlds of business" became less expensive to operate and more were started that could not have previously. In CPM, or Critical Path Method, a manager It is presumed that over 100,000 patents are granted annually and at least 10% of those bring cost reductions in processes. Let's assume a cost reduction of 15% minimally.

Let's presume 1,000 possible immediate processes can use these new innovations and that each company gains 15% of a $5,000,000 increase in profits. $750,000 in improvements and 1,000 companies are prime candidates; that means $7,500,000 more total profits. For one innovation. Times 100,000 equals over $7,000,000,000,000 in new profits from efficiencies.

That is equal to the entire GNP of many nations. And that is only one year's innovations.

These numbers can be confirmed. The point has become, more easily access to venture capital must become an assured thing or businesses will suffer wastes of untold amounts!

And what happens to the soul of the innovator who cannot get to market?

How, then, can venture capital be made safer or more secured? Actually, that is easier to answer than one might imagine! First, the US Government originated, decades ago, the animal called the Small Business Development Center and the Small Business Investment Corporation. This author has run one of these enters but has never met a manager or founder of an investment corporation. The law permits a lender to apply for "authorized lending center" status and once granted, the lender's loans, like the SBA loans, are guaranteed by the government.

Also, this author created a system decades ago where a person finds real estate at substantial discounts from fair market value. The buyer finds a lender who will permit a 90+% re-finance based on appraised value within a year. With this re-finance, the borrower than invests this "cash out re-fi" with a business buyer and thus, the entrepreneur gets a business to run, the real estate buyer gets another investment, and everyone wins. As long as the real estate mortgage is paid, the borrower wins. The business becomes free-thus, no risk to the entrepreneur or the real estate buyer
 

Article Source: http://EzineArticles.com/?expert=K._Kemper
 

 see Venture Capital or go to  answering service  VC2

click for top