Global Venture Capitals

Category: Investing

Venture Capitals

A Venture capital or VC is a financial company (private equity) which provides funding opportunities to high growth-potential start-ups. These start-ups may be on an early-stage or on a later stage of development. Usually, venture capitalists are focusing on high growth industries like the online industry. The funding choice of a venture capital is ideal for new companies that are dynamic but too small in order to raise funds in the capital markets. Important roles in a Venture Capital except for the management include:

Venture Capital Management (they get paid from investors and receive an annual fee of 1-2% of the total capital plus a performance incentive 10-20% of the venture capital profits)
Venture Partners — (they are employees tracking potential investment opportunities)
Principal — (they are experienced employees in a particular field like investment banking of business consulting)
Associate — (below principal, it is an apprentice position)
Entrepreneur-in-Residence (the EIR are experts in performing due diligence to particular types of industries)

How a Venture Capital Choose Partnerships

A venture capital is focusing on a business model, management, innovation, technology, projected growth and projected cash-flows. A venture capital does not focus on projected dividents as venture capitals usually sell their equity before a company enters the dividend period. The common timeframe of a venture capital is from 3 to 7 years. Venture capitalists carry out precise due diligence before they enter a company’s share capital and they give extra weigh to the past-consistency of the company’s management.

There are 5 main stages regarding business development:

Business Idea
Start-up Foundation
VC Entrance
Start-up Expansion
VC Exit

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Our Tips for the Ideal Business Plan to Fund your Start-up

A solid business plan should consist a brief analysis of the industry and the business model, a brief presentation of the proven experience of the management team, high projected growth and cash-flows analysis for at least 5 years ahead. The average projected IRR (internal rate of return), should be at least 30%. Don’t try to promise to deliver things you will not able to justify. Be precise and accurate especially as concerns the fixed cost and in order to project future growth use at least 3 different scenarios. Here are some good tips for the ideal business plan:

1) Describe briefly the growth opportunities of the industry by giving weight into future technological developments

2) Describe how the management team has the experience and the capabilities to serve that industry better than the competition already does.

3) Present at least 3 scenarios describing future growth (basic scenario, unfavorable scenario, and optimistic scenario)

4) Cost analysis: Divide Cost into Fixed and Variable and evaluate the Cost Per Unit and the Marginal Cost

5) Make a reliable cash flows analysis for 5-10 years ahead.