Types of Venture Capital Firms

Traditional Partnerships are often established by wealthy families to aggressively manage a portion of their funds by investing in small companies.

Professionally Managed Pools are made up of institutional money and which operate like the traditional partnerships.

Investment Banking Firms usually trade in more established securities, but occasionally form investor syndicates for venture proposals.

Insurance Companies often have required a portion of equity as a condition of their loans to smaller companies as protection against inflation.

Manufacturing Companies have sometimes looked upon investing in smaller companies as a means of supplementing their research and development programs.

In addition to these venture capital firms, there are individual private investors and finders.  Finders, which can be firms or individuals, often know the capital industry and may be able to help the small company seeking capital to locate it, though they are generally not sources of capital themselves.  Care should be exercised so that a small business owner deals with reputable, professional finders whose fees are in line with industry practice.  Further, it should be noted that venture capitalists generally prefer working directly with principals in making investments, though finders may provide useful introductions.

The Importance of Formal Financial Planning

In case there is any doubt about the implications of the previous sections, it should be noted that it is extremely difficult for any small firm  especially the starting or struggling company - to get venture capital.

There is one thing, however, that owner/managers of small businesses can do to improve the chances of their venture proposals at least escaping the 90% which are almost immediately rejected.  In a word - plan.

Having financial plans demonstrates to venture capital firms that you are a competent manager, that you may have that special managerial edge over other small business owners looking for equity money.  You may gain a decided advantage through well-prepared plans and projections that include: cash budgets, pro forma statements, and capital investment analysis and capital source studies.

Cash budgets should be projected for one year and prepared monthly.

They should combine expected sales revenues, cash receipts, material, labor and overhead expenses, and cash disbursements on a monthly basis.  This permits anticipation of fluctuations in the level of cash and planning for short term borrowing and investment.

Pro forma statements should be prepared for planning up to three years ahead.  They should include both income statements and balance sheets.

Again, these should be prepared quarterly to combine expected sales revenues; production, marketing and administrative expenses; profits; product, market or process investments; and supplier, bank or investment company borrowings. Pro forma statements permit you to anticipate the financial results of your operations and to plan intermediate term borrowings and investments.

Capital investment analyses and capital source studies should be prepared for planning up to five years ahead.  The investment analyses should compare rate of return for product, market, or process investment, while the source alternatives should compare the cost and availability of debt and equity and the expected level of retained earnings, which together will support the selected investments.  These analyses and source studies should be prepared quarterly so you may anticipate the financial consequences of changes in your company's strategy.  They will allow you to plan long term borrowings, equity placements, and major investments.

There is a bonus in making such projections.  They force you to consider the results of your actions.  Your estimates must be explicit; you have to examine and evaluate your managerial records; disagreements must be resolved - or at least discussed and understood.  Financial planning may be burdensome but it is one of the keys to business success.

Now, making these financial plans will not guarantee that you'll be able to get venture capital.  Not making them will virtually assure that you won't receive favorable consideration from venture capitalists.

As Soon as You have decided what Kind of business you want to Begin and The investment requirements, you are ready to select a
location. The number of competitive companies already in the region should influence your choice of location. Many areas are
bombarded with support stations or particular forms of restaurants. Check on the number of your type of business in Census
figures, the yellow pages, or by checking out the place.

Factors Aside from the Possible market, availability of Workers And number of competitive companies must be considered in
selecting a location. For example, how adequate are utilities - sewer, water, electricity, gas? Parking facilities? Fire and fire
protection? What about home and environmental things like schools, cultural and community actions for workers? What's the average
cost of the place in rents and taxes? Check on zoning regulations. Assess the business of the neighborhood business-people, the
aggressiveness of civic associations. In short, what is the city soul? Such aspects should provide you an idea into the city or
town's future.

Chambers of Commerce and nearby universities Normally Have created or Are familiar with local polls which may provide answers to
those questions and the a number of other questions which will occur to you.

Next you must decide in what area of town to find. If the city is Very small and you're establishing retail or service business,
there will most likely be little option. Only one shopping place exists. Cities have outlying shopping facilities along with the
central dining area, and shops spring up along principal thoroughfares and local streets.

Think about the shopping center. It's different from other locations. The shopping center building is pre-planned as a
merchandising unit. The site was deliberately selected by a programmer. On-site parking is a common feature. Clients may drive in,
park and do their buying in relative speed and safety. Some facilities offer weather protection. Such amenities make the shopping
center a valuable location.

Additionally, there are some limitations you ought to know about. As a renter, You become part of a merchant team and has to pay
your pro rata share of the budget. You must keep shop hourslight your windows, and place your signals according to established
rules. Many communities have restrictions on evidence and the middle management may have further limitations. What's more, if you
are considering a shopping centre for your first shop you may have an additional issue. Developers and owners of shopping
facilities look for successful retailers.

The type and Wide Range of merchandise you carry helps determine the Kind of purchasing place you choose. For example, clothing
shops, jewelry stores and department stores are more likely to be prosperous in shopping districts. On the flip side, grocery
stores, drug stores, filling stations, and bakeries do better on principal thoroughfares and local streets outside the shopping
districts. Some sorts of stores customarily pay a very low rent per square foot, while others pay a high rent. In the"low"
category are furniture, grocery stores and hardware stores. In the"high" are cigar, drug, women's furnishings, and department
stores. There is not any hard and fast rule, but it is helpful to see in which type of area a shop like yours most often seems to
flourish.

After deciding an area ideal for your type of business, Obtain as many facts as you can about it. Check the competition. How many
similar companies are located nearby? What exactly does their sales volume seem to be? If you're establishing a store or support
transaction, how far do people come to exchange in the area? Are the traffic patterns favorable? If most of your clients will be
local inhabitants, research the population trends of the area. Is population climbing, static or decreasing? Are the people
native-born, blended or chiefly foreign? Are fresh cultural groups coming in? Are they mostly laborers, clerks, executives or
retired persons? Are they all ages or principally retired, middle aged, or young? Judge purchasing power by assessing average
house rental, average property taxes, number of telephones, number of cars and, even if the amount can be obtained, per capita
income. Larger shopping centers have this sort of information available, and will make it available to serious prospective
tenants.

Zoning ordinances, parking availability, transportation facilities And natural barriers - such as bridges and hills - are
important considerations in locating any sorts of business. Potential sources for this information are Chambers of Commerce, trade
associations, real estate businesses, local papers, banks, city officials, local merchants and personal monitoring. In the event
the Bureau of the Census has developed census tract data for the particular area in which you're interested you'll find this
especially valuable. A census tract is a small, permanently established, geographical place within a big city and its environs.
The Census Bureau provides population and housing characteristics for every tumor. This information could be valuable in measuring
your marketplace or service potential.

Deciding upon the actual site in a area may well be accepting what you May get. Not too many buildings or plants will be
appropriate and in the exact same time, available. Should you have a choice, make sure you weigh the chances carefully.

For a production plant, think about the condition and suitability Of the building, transport, parking facilities, and the type of
lease. For A shop or service establishment, assess out the closest competition, traffic Flow, parking amenities, road location,
physical aspects of the construction, Type of lease and price, and the speed, price and quality of transport. Also Investigate the
history of the site. Find answers to such questions as: Has the Building remained empty for any amount of time? Why? Have various
types of Stores occupied it for short periods? It might have proved unprofitable for them. Sites where many enterprises have
failed should be avoided. Vacant buildings Don't bring traffic and are generally considered bad neighbors, therefore check on
nearby unoccupied buildings.