Secrets of Successful Entrepreneurs and Venture Capital Investors

Venture capital is not an easy game. Not all venture capitalists have been successful investing in start ups in different fields such as infrastructure, innovation, biotechnology, information technology, or software. Investing in these types of businesses involves great risks and hard works, not to mention the huge amount of money that they have to venture in. Venture Capitalists assume enormous risks with high levels of uncertainty.

 Successful VC investors accept uncertainty as an integral part of being in business. They must be ready to face many crises and allow temporary failures without having to panic. After all, failure is the mother of success.  Even Thomas Edison, a genius inventor, failed a thousand times before he finally succeeded with his inventions or discoveries. Talk to an entrepreneur or to any group of up-the-corporate-ladder type businessmen who sees innovation and creativity as the path to profitability and long term sustainability, and they will share openly about failures, mistakes, and setbacks as steps along the path to success.

Venture Capitalist Adi McAbian, a 36 year old successful entrepreneur who is the managing director of TwistBox, and a board member of the Internet Task Force of Boston, has a proven track record for creating, growing and selling successful businesses. He shared that the secret lies in being able to harness that idea and quickly bring it to fruition in a cost-effective manner. "Many budding entrepreneurs get too caught up with the massive amount of detail involved in creating a burgeoning company's infrastructure, rather than focusing on the business itself," explains Adi McAbian, "I advocate outsourcing the basics to those that specialize in this. To be successful in this tough economic climate, you need to focus 100 percent of your attention on your business model and customers."

On the other hand, mastering the VC game combines the right mix of facts, advices, people and stories. Integrating the experiences of notable entrepreneurs is extremely helpful and beneficial. Dee Power and Brian E. Hill, authors of Secrets to Unlocking Venture Capital for Your Company, also shared the secrets to obtaining venture capital:

• Preparation - It is imperative to prepare yourself and your company in searching for seed capital or growth capital by developing a clear, concise, and realistic business plan that would make the reader excited about the opportunity that your company would present. Failing to clearly identify the opportunity is the most critical mistake that entrepreneurs make, according to venture capitalists. Before you approach an investor, speak to advisors or other entrepreneurs who have worked with them to find out as much as you can. Provide a strong and experienced management team with diverse range of expertise. And do not make simple mistakes such as wrong spelling, grammar, or computation.
• Positioning - To make sure that what you are offering is what they are looking for, research the investment criteria of the venture capitalists. A company that does not match with the venture capitalists’ investment criteria is the second most common reason why they are being declined. It is also important to get referrals by other VC firms, and get one if you do not have one yet. 
• Perseverance - Keep trying. Do not give up. Follow up your submitted plan through phone call, fax, or email weeks after your proposal. Or you can be persistent by calling the VC firm everyday. Continue to widen your network of contacts to give you more avenues of approach to the investors. And most of all, believe in your passion about your company.

An accomplished venture capital investors spend a lot of time digging into an entrepreneur’s past failures because they believe that such failures will make an entrepreneur more amenable and responsive. Success stories have many milestones - positive and productive, or even setbacks. But it is not what you lose from setbacks, rather what you learn from it and apply that would make a ventured business a success. 

Why Raise Venture Capital Amid Unstable Economic Situation?

As we know, venture capital lies on the opportunity of investing. It involves high risks and it can be very time consuming. However, if the ventured business grows it can reap a very huge reward.  A few years ago some venture capital investors are holding back their expenditures amid the financial downturn, according to some financial blogs. This financial crisis made it harder for investors to get funding for startup businesses or business expansion but those who prove themselves during this period of financial crisis will be better positioned to flourish when the economy recovers.

According to the IMF’s World Economic Outlook report last January 2010, they forecasted 3.9 percent GDP from the said year and projected 4.3 percent GDP for this year. Some people thought that the global economy recovered faster than what was planned, but some believed that the recovery has been slower than they had hoped. According to IMF chief economist Olivier Blanchard, a global recession has been avoided, so that a gradual recovery of world economy is present. But some developing countries have restored faster after the global crisis particularly in Asia such as China and India, and in Latin America such as Mexico and Brazil. Despite this unstable economic situation, the United States has always been a dominant force in fostering world innovation.  

With the economy turning down and some educational concerns remain an issue; the United States has been desperately conscious of a changing world. Transforming ideas into marketable and lucrative products is the greatest skill of venture capital that was challenged by the globalization and technology breakdown in the past years. The venture capital community was more pressured to continue superior performance and maintain competitive edge as the global standards are arising. Since taking his office, President Obama has taken historic steps to lay the foundation for the innovation economy of the future. 

The United States strongly focuses on innovation. The Obama Innovation Strategy builds on well over $100 billion of Recovery Act funds that support innovation, additional support for education, infrastructure and others in the Recovery Act and the President’s Budget, and novel regulatory and executive order initiatives according to the White House website.

This is an exceptional time for the venture capital community, and together as a whole, the industry must address venture investments and methods to make certain to have a continued growth direction for promising young or startup companies. The economic situation today creates ideal opportunities for angel investors and venture capitalists. The importance of venture capital lies not only in providing money for this innovation but also ancillary services such as selecting good firms, mentoring entrepreneurs, hiring executives, formulating strategies, and professionalizing companies thus, providing job opportunities for the Americans as well.

Knowing the Importance of Growth Capital in a Business Cycle

Most often a high-growth and mature companies look for funding to increase their profit, to expand, to restructure operations through organic approach, to enter new markets, or to finance a significant acquisition without a change of control of the business. These companies seek for growth capital to finance a major transformation of their business. 

Growth capital is a form of private equity investment in a late-staged level of a business life. Financial institutions tend to provide this capital to businesses who are able to generate revenues and operating profits, and to those companies who have already reached a stable point where they are capable of exploring opportunities or expansion but unable to generate sufficient funds.  Financial firms who provide growth capital support businesses that have market leadership potentials.

Growth capital is also known as growth equity and expansion capital. It exists at the intersection of private equity and venture capital and it is provided by a variety of sources. Companies who seek for growth capital are likely to be more mature than venture capital funded companies because they have already established their revenues that are already proven in markets or industries. Because of insufficient funds these companies generally can find alternative conduits to obtain capital for growth and expansion. 

Growth capital is often structured as either Common equity - a type of capital used to directly absorb losses; or Preferred equity - a measure of equity which only takes into account the preferred stockholders, and disregards the common stockholders. While other investors also use various Hybrid securities that include a contractual return such as interest in payments, in addition to an ownership interest of the company. Hybrid securities are group of securities combining debt and equity, the elements of the two broader groups of securities. It behaves more like fixed interest securities while others behave more like the underlying shares into which they convert.

There are numbers of dedicated growth equity firms around the United States that can provide the financial needs of your business development. The amount of capital that can be produced would range anywhere from $2 million to $100 million, depending on the firm and whether they would take a majority or minority investment in your company. Since this type of financial service involves a great amount of capital, therefore it is best to partner with financial firm who have time-tested and battle-hardened fund raising techniques, who do not just provide you financially but coaches you as well, and most importantly, who delivers service with the highest sense of integrity.

How to Apply for Startup Loans or Seed Capital After your Bank Declined

So your bank declined after complying with all the requirements necessary in applying for a startup loan? It is very discouraging when after all the efforts you have invested in and the time consumed of securing all the documents needed, you were still rejected by your bank. This loan rejection could affect your business lines of credit for future business loans. But do not take it personally because there are always challenges when going through the business loans application process. Try to stay calm and find out why your application was not approved.

It is imperative to know and understand why your loan application was not approved by your bank. Most of these financial institutions would not go through the details as to why your application was declined because they are afraid they might be offending you, but knowing the reasons why can be crucial to your business success and it can be very helpful in your subsequent business loan applications. You may ask your lending officer politely and tell him that you understood why they would not be able to help you; however, you need to know the reasons of their disapproval in preparation for your next loan application.

After being turned down from your local bank, stay calm and do not lose your hope. The rejection of your loan application may only reflect the financial health situation of the bank, perhaps the bank is not really in good financial shape and are only offering loans to their best valued customers. But it does not mean that you are not one of their best valued customers, perhaps these clients are their loyal customers who have been in business with them for such a very long time. If you have been their client for such a very long time as well, perhaps you were the last one to apply.

There are few best options left for you in acquiring startup loans or seed capital for your startup business.  Your best solution is to look for a financial firm that offers unsecured business loans which do not demand for many requirements unlike your local conventional bank. It is best to partner with this type of unsecured business financing firm who understands your financial needs and helps you obtain unsecured business lines of credit.

There are angel investors network as well that can provide you seed capital that eliminates unnecessary applications which could also have resulted in disapproving your previous business loan application. This network of investors may help you analyze your business plan, offer essential coaching for entrepreneurs seeking to raise venture capital, and will work with you to accomplish your goals. Partnering with angel investors for your startup business enables your business to succeed and they will continue to help your existing business for future expansion. 

There are several financial institutions other than banks where you can obtain business funding for your startup business or business expansion. If you are not familiar in your area, you may search on the internet and apply through online, or you may call their hotline numbers and they would be happy to assist you with your financial needs.

The Need of Acquiring an Unsecured Business Loan

Unsecured business loan is commonly used by borrowers for start-up businesses, or even for small purchases such as computers, office or home improvements, or unexpected necessary expenses. It is a type of loan that is not collateralized by lien - the right to take a property if an obligation is not met or in the case of bankruptcy. It is a debt granted to borrowers that is supported only by the strength of the borrower’s credit history, reputation, potential earnings, and other assets owned by the borrower. 

Unsecured business loan is also called Signature loan because the lender only takes the borrower’s word for it (that is why it is also called as Good Faith loan) and has nothing to acquire but his or her signature. The lender can not take any possession such as house, lot, car, or any valuable belonging. The borrower signs a promissory note stating the terms and conditions, that the loan will be paid over an agreed period of time but typically for a short term only, usually a period of 1 to 5 years. The lender will ask a co-maker or guarantor to sign the note as well, pledging to pay the unsecured loan in the event of failure to pay at the agreed time by the main borrower.

This takes higher risk compared to secured loans so the interest rate for unsecured business loan tends to be much higher and a lump sum payment is usually required. However, for people who do not have any collateral to pledge, this unsecured business funding is very much appealing. Apart from that, some unsecured business financing firms offer processes that help eliminate unnecessary applications that may result rejection. This could possibly damage the borrower’s unsecured business credit lines along the way and hinder their ability to qualify for future loans. Having a good credit standing is imperative in acquiring this loan because the better your credit history is, the lower is your interest rate and the higher loan amount you can get.

Hiring a Placement Agent to Market Mezzanine Capital and Growth Equity Investors

A placement agent is a financial firm who act as an intermediary in the world of fundraising. Sometimes it is an individual but more often a firm, who assists entrepreneurs, private companies, or institutional investors who are willing and capable of investing a private equity fund. Basically, they match cash-hungry funds with cash-rich investors. They are often structured as groups within huge investment banking firms such as Credit Suisse Private Fund Group and UBS Investment Bank, or as separate boutique investment banks such as MVision Private Equity Advisers and Campbell Lutyens.

In the context of private equity, a placement agent serves several functions for a company such as raise mezzanine capital or venture capital, as well as raise investor commitments to new private equity funds. The market is very competitive especially with the advancement of media and technology, and the need of a placement agent is now certainly arising in this new economic environment. They are crucial to fundraising for emerging markets of private equity funds.  

A company usually hires a placement agent in order not to spend too much of its own time seeking for mezzanine capital or growth equity investors. Sometimes the lender also commissions an agent so that the fund partners can aim attention at management issues rather than focusing on how to raise venture capital. Mounir Guen, chief executive of MVision says, “A placement agent is a necessity.”  Why? “Because if the job is done well it brings a level of sophistication and experience to the fundraising process.” This is because financial institutions have become more crucial and sophisticated in evaluating potential investments.

In the past, these agents were hired to introduce private equity funds to the investors or to what they termed as limited partners (LP), and simply congratulated after a job well done. But today, they are highly valued advisors who understand and know their limited partners and the market’s appetite for different approaches. They also advise and assist fund managers and help develop marketing strategies. Their critical responsibility is constantly trying to satisfy their limited partners and value their judgment in order to establish long term and deep relationship.

Placement agents can bring a myriad of relationships with growth equity investors, mezzanine capital firms, or venture capitalists. They can cherry-pick investors that are likely to come into a particular fund, increasing efficiency and minimizing risk in the fundraising project, according to James Coleman who joined Deloitte LLP after UBS Investment Bank, two of the globally known financial services firms. They can also advise some existing owners of private equity assets on secondary market sales of their interests.

Placement agents are mostly compensated through fees ranging from 1 percent to 3 percent by the companies or individuals who raise capitals. Sometimes their fees and terms of engagement would extremely vary depending on the length of time to execute the fund and based on the amount of money raised.

The Significance of Mezzanine Capital in Funding a Business

Mezzanine Capital, also known as Mezzanine Debt, is a type of liability funding that comprises equity-based option, such as rights and warrants, and a lower-priority debt. It is a hybrid debt matter that is in subordinate to an existing debt, a debt provided by senior lenders such as banks and venture capital investors. It is frequently used in financing acquisitions and buyouts where it can be used to prioritize new owners ahead of existing owners in the event that a bankruptcy occurs. It basically gives the lender the right to assume ownership of the company if the debt is not paid back in time and in full.

Mezzanine capital is commonly used by companies beyond the start-up phase but before initial public offering or IPO, to fund the last stage of the projects or to fund unexpected operational costs before going public. This unsecured form of funding usually involves attachment of security interest to the stock of a corporation and does not attach a security interest on its physical asset. Because mezzanine debt is unsecured, lenders typically charge a higher interest rate more than on senior debt instruments. For some riskier projects such as real estate business, the interest rate differs significantly. Hence, many companies try to seek other less expensive forms of debts before acquiring mezzanine debt.

Mezzanine debt behaves more like a stock than a debt because of the enclosed options that include stock call options, rights, and warrants. Oftentimes it is an expensive source of funding than secured debt or senior debt. Nevertheless, it is advantageous because it is treated more like equity on a company’s balance sheet and may make it easier to acquire standard bank financing. It does not require collateral and no typical inspections just like in a typical conventional lender, thus, providing the mezzanine capital quickly. However, if the borrower defaults, the lender therefore will be entitled to receive ownership interests in the entire corporation, including all physical assets and liabilities. 

Companies who invest mezzanine capital should be profitable. They must have proven track record in their chosen industry with established reputation and product, a history of profitability, and should have a viable expansion plan to draw attention for future mezzanine funding. These are typically what these lenders look for since they offer high return of investment with high risk, and a placement agent is hired accordingly. They are an outside firm who would help market the lender’s fund to institutional investors.