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Venture capital
Venture capital firms are owners. They hold stock in the company,
adding their invested capital to its equity base. Therefore, they
examine existing or planned products or services and the potential
markets for them with extreme care. They invest only in firms they
believe can rapidly increase sales and generate substantial profits.
Most venture capital firms are
interested in investment projects requiring an investment of
a certain size. The venture capital firm can provide funds to enable
such companies to grow in a spurt rather than gradually as they
would on retained earnings.
If the venture firm has already extended its portfolio to a large
risk concentration, they may be reluctant to invest in these areas
because of increased risk of loss. Next in importance to the
excellence of the proposing firm's management group, most venture
capital firms seek a distinctive element in the strategy or
product/market/process combination of the firm.
Problems Anticipated and Other Pertinent Information--a candid
discussion of any contingent liabilities, pending litigation, tax
or patent difficulties, and any other contingencies that might
affect the project you are proposing. The
present value of the contribution by the owner of a starting or
financially troubled company is obviously rated low. While it is understandable that the management
of a small company will have some anxiety in this area, the partners
of a venture firm have little interest in assuming control of the
business. They usually hope to do this within
five to seven years of their initial investment. Care should be
exercised so that a small business owner deals with reputable,
professional finders whose fees are in line with industry
practice. cash budgets,
pro forma statements, and capital investment analysis and
capital source studies.
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