indoglobe investments

What is a venture capitalist?

Venture capitalists are individuals or companies who provide investment capital and management expertise to new businesses. In return, they will ask for an equity position in the company, usually in proportion to their risk and the amount of their investment. They have a stake in your company because their future returns are tied to its performance.

How does a venture capitalist get involved with my business?

Venture capitalists effectively buy their way into the company with their investment. That means that the company will not have to repay the capital; rather, venture capitalists expect to take their return in capital gains. The company will have a sizeable amount of money to work with, while the venture capitalist takes an active role in managing the company to ensure it success. After all, the venture capitalist has just bet a great deal of money that your company will be a winner.

What role will the venture capitalist play?

A venture capitalist must be seen as a partner. His or her active management participation may occur through membership on the board of directors, or through input into other management decisions. The venture capitalist's goal is a high (30-40 percent per year) return on the investment over the period of his or her involvement, which is typically four to seven years. This means that the company must follow an aggressive growth strategy.

How can a venture capitalist benefit my business?

The resources and expertise of a venture capitalist not only bring money without the requirement of regular repayment by the company, but also provide several other less tangible benefits. The venture capitalist shares a common desire for success with you, and should not be thought of as a lender. He or she contributes expertise, experience, contacts, and discipline. The presence of a venture capitalist also lends credibility to the company.

What should I do to find a venture capitalist?

Before seeking a venture capitalist, you will need to tailor your business plan into a venture capital plan. A venture capital plan differs in the following ways:

• It is a strategic document in that it not only sells a financial plan to investors, but the company's vision, future goals, and potential.
• It must clearly demonstrate how the company intends to repay the venture capitalist's investment, and what the exit strategy will be.
• It must describe exactly how much money the company wants, and what it will use it for.
• Additional detail is required because venture capital is riskier than traditional financing.

How can I research a venture capitalist?

A venture capitalist typically has a preferred industry, region of the country, investment size, and stage in a company's development. Attorneys and accountants can often refer you to venture capitalists they know or have worked with. Extensive information about individual venture capitalists is also available on-line. Once you find several candidates, it is advisable to research them thoroughly, including their past performance record and any referrals and recommendations from past clients.

What can I expect in my first meeting with a venture capitalist?

Ideally, your first meeting with a venture capitalist should occur after you have been introduced by a mutual contact that can vouch for you and your company. This referral can enhance your company's credibility, and your chances. You will need to make your proposal at this meeting, so you should consider carefully what you will say, and rehearse it. You will need to impress the venture capitalist that he or she can help your company grow, and that it can make money for him or her as well as for itself.

How a Business Attorney Can Help You?

Whether you are in the process of locating a potential venture capitalist investor, or already have one in mind, speaking to a seasoned business law attorney during this process will be important to the future of your organization. Always seek legal advice before signing any paperwork or entering into a business venture.