If You’re Planning on Emerging Into A Multimillion Dollar Enterprise Business Then Venture Capital May Be For You
The next step up the financing food chain would be venture capital. This type takes the tasks too large for Angels, or that would be better suited to a VC firm whom can provide more legitimacy to the offering.
Venture capital firms usually invest in projects from several million dollars up. The money is from private investors and is pooled into an investment fund that is professionally managed.
This is the high end of the food chain for small business investments, with most VC firms opting to shoot for amounts in the $1-2 million range.
For the purposes of a small or home business, you would have a hard time finding venture capital specialists who would consider your project if it was not sizable enough.
For them, it would not make sense, as the return would not be great enough to justify the effort. You most certainly would not seek out the services of a VC firm for an amount like $10,000.
These funding firms may have hundreds of millions of dollars to invest, and are looking to invest these funds in a set number of companies that will generate good returns for the investors.
These funds are invested with the proviso that at an agreed-upon date in the future, usually 3-7 years out, the fund will liquidate, and distribute proceeds to the investors, which they hope will be around a 20% annualized return on their investment dollars.
The hope here is that while some of these invested-in companies will fail, and some will just break even, there will be others in the group that will be wildly successful, and make investing in the fund a profitable proposition. When the fund investment ends, the investments are “cashed out”, and the VC investors are repaid.
Venture capital for your small business (small is relative here!) can be obtained by having a great business plan and presentation to present to venture capitalists so that they can take a look at your dream.
If they like what they see, and can tell there is some likelihood for substantial success in your project, you're in!
Understand that these are very talented people assessing your plan.
They've seen many hundreds of these proposals over the years, and if you have not worked out all the readily conceivable scenarios concerning your plan, you will not be taken seriously.
Moreover, with the current state of the economy, obtaining venture capital is harder than it once was, and sometimes you need an introduction or recommendation just to get your foot in the door to present your plan. Be prepared when that day arrives!
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