The initial presentation of your startup company to venture capitalists or angel investors is a crucial aspect in successfully expanding. The Instigator Blog offers 5 quick tips on pitching venture capitalists and angel investors:
Briefly Tell Your Story: You will quickly lose your audience’s attention if you are not entertaining or if you drone on for too long. Share your story in an entertaining way about how your company formed and why you need the investors’ money.
Change the Pace Throughout: Speed up during the overview and less detailed parts of your presentation but slow down for the more complex and important areas. This allows you to captivate your audience while still delivering the details.
Have Stylish Slides: Image isn’t everything, but it is something. Having “sexy” visuals will help keep your audience’s attention, so adding some style to your slides can go a long way for your presentation.
Don’t Over Emphasize Your Product: Investors are interested in you and your company primarily, so don’t dull your investors by listing all the benefits of your product.
Finish Strong: Although many save all those little details and projections for the end, it is better to end with a memorable finish that leaves your audience excited about your and your company.
Here are some basic tips for scoring an interview with a venture capital firm.
As some of you may already be aware of, venture capital firms are flooded with eager business school graduates trying to break into this exciting field. Getting an interview at a venture capital firm is difficult, and ultimately other factors will decide whether you get the job (like how well you actually perform in the interview and your academic background). But how can you even get the interview? Here’s a few basic tips on getting an interview at a venture capital firm:
Network- The venture capital industry thrives on contacts and referrals, so make a point of building a large list of contacts. Even if you don’t get a job working for these people, they may know someone hiring.
Experience- Venture capital job competition is fierce and having some experience in venture capital whether through some related work experience or even a brief internship will boost your chances at being seriously considered. Any relevant experience will work in your favor.
Research- Get out there and involved in the industry, understanding your field is key. Visit trade shows and forums to get a better grasp on venture capital. If possible, use VentureOne and VentureXpert to study the industry and find the most popular and expanding investment sectors.
Trying to find an angel investor can be difficult, if you don’t know where to start. Angel investor networks help you court angel investors by specific interests or regions, a good starting point for your quest for capital. So here is a comprehensive list of angel investor networks separated by geographical location:
National Angel Investor Networks
Active Capital: Restricted to only entrepreneurs that can sell securities in their company, also some businesses cannot join based on industry or the company structure. Helpful for companies raising $1 million or less, but has potential for up to $5 million. Fees: vary by state.
Investors’ Circle: A nonprofit angel investor network that focuses on socially responsible businesses. The target industries for entrepreneurs are: energy and environment, food and organics, education and media, health and wellness, community and international development. This angel investor network does not permit companies raising more than $10 million. Sign your company up before August 1st to be considered for the Fall Venture Fair.
Tribe of Angels: Jewish angel investor and business network, focuses on smaller investments ranging from $50,000 to $1 million.
The Gathering of Angels: An opportunity for startup companies to show their business proposal to accredited angel investors. Six companies present for 20 minutes followed by 2-5 minute Q&A with the investors. Also included is three hours of virtual coaching to prepare for the proposal. Fee: $2,500.
Pacific Northwest Angel Investor Networks
Portland Angel Network: This network favors early-stage investing and you must be based in Oregon or Clark County, Washington.
Alliance of Angels: Companies must be headquartered in the Pacific Northwest. This is a members-only site where you can view business proposals, and there is no cost for submission or screening of business plans.
Vancouver Angel Technology Network: Introduces early stage technology companies to investors, all located primarily in British Columbia. The angel investor network consists of seasoned technology veterans and 30 to 40 usually attend the meetings where companies meet angel investors.
Southwest Angel Investor Networks
Arizona Angels: Invests exclusively in Arizona-based companies, with over 100 angel investors.
Desert Angels: Similarly focused only in Arizona companies, but with only about 50 angel investors.
Northeast Angel Investor Networks
Common Angels: Limited to Boston area companies, this large angel network favors early-stage software companies.
Maine Angels: This angel network is ideal for companies hoping to raise from $50,000 to $250,000. Although the Maine Angels tend to invest in local companies they are open to other locations.
Silicon Garden Angel Investors Network: Invests in East Coast companies with a somewhat smaller than most networks’ average investment ranging from $20,000 to $250,000.
Tech Valley Angel Network: This angel investor group invests in early-stage businesses in northeastern New York and New England.
California Angel Investor Network
Fast Angels: Tech focused group that invests primarily in Silicon Valley companies. Motto-”Act Faster, act smarter.”
The Angel’s Forum: Invests in seed and early-stage business ventures. The Angel’s Forum invests primarily in consumer products, enterprise software, industrial products, Internet and e-commerce, medical devices and service, as well as clean-tech.
Band of Angels: Large and established angel network invests in a variety of high-tech companies with over 100 angel investors.
Sierra Angels: 50 member strong angel group that focuses on companies in the Northern Sierra region including Nevada, California and other close locations. The average investment ranges from $250,000 to $2,000,000.
Houston Angel Network: Nonprofit organization that links startup companies with accredited angel investors. This angel investor network invests in companies based in Texas or willing to relocate to Texas.
If you have any additions please e-mail me at Theo@peblogger.com, also angel investor networks that would like to provide their own brief summary can contact me.
There are many opportunities for people hoping to break into the private equity scene, so here are some quality private equity education opportunities that I’ve found:
Dartmouth offers a private equity focused MBAs. Also the Tuck School of Business is friendly to private equity students, offering internships in the industry, private equity clubs and private equity fellowships.
The Thunderbird Private Equity Center has a focus on the global private equity and venture capital industry, advancing students, investors and professionals’ understanding.
I will be adding more to this list, eventually making it into a guide of credible opportunities for those hoping to advance their career through education in private equity. If you have any potential additions please e-mail me at Theo@peblogger.com
Mezzanine financing refers to a combination of debt and equity financing. Mezzanine financing is typically used by expanding companies that need money but don’t want to go public and risk losing ownership of the company. Mezzanine lenders offer the company the desired funds and do not require collateral. However, mezzanine lenders charge unusually high interest rates (often 20-30%) because the risk for the mezzanine lender is very high.
In addition to high interest rates, mezzanine lenders can convert their loan to equity or ownership if the company defaults on the loan. So, although there is a major risk that the lender may lose a lot of money on the loan, the borrower also faces significant risk. Mezzanine financing particularly attracts privately-owned companies, because it is a way to secure funds from lenders that have no active interest in the company. The dual risks to the mezzanine lender and the borrowing company make the exchange much more involved and lasting. Thus, the mezzanine lender carefully looks to reduce risk by investing in an established, promising business. Companies hoping to attract mezzanine funding usually submit detailed proposals that assure the lender that the investment will be profitable.
The following piece on Brookstone Partners is being published as part of our Private Equity Tracker Tool, our daily effort to track private equity firms in the industry. HarbourVest Partners is a large private equity fund of funds and private equity investment manager.
Resource #1: (8.18.2009) Fundraising cycles for large private equity houses are likely to lengthen as the slow pace of investment leaves many with unspent capital from previous funds, said the head of HarbourVest’s fund of funds business in Europe.
Large private equity buyouts have ground to a halt in the wake of the credit crisis as debt funding for new deals has dried up. There were no European buyouts over $1 billion in the first six months of 2009, compared with 17 in the same period of 2008 and 36 in 2007, according to Thomson Reuters data.
As a result, many large buyout firms still have substantial capital to deploy from funds raised three or four years ago, said managing director George Anson. Source
An impressive business plan is key to attracting investors, here are Forbes‘ ten critical components to a good business strategy.
A cover sheet and table of contents: Include all the obvious like your company’s name, contact info, and a outline of what to expect in the proposal.
Executive Summary: communicate all the key elements of your proposal, and for the potential investors explain how much money you want and how you will use it.
Market Opportunity: Explain the product or service you are selling, and the buyers you target.
Industry Analysis: Introduce your competition in the industry and argue why your business will succeed against competitors.
The Team: This section should present profiles of your business’s founders, partners or officers that shows investors the skills and qualifications each member of your business possesses.
Business Model: Cover the operational structure of your business, from revenue sources (advertising, product sales, etc.) to the cost structure (salaries, rent, maintenance etc.). Explain why these costs are necessary.
Financial Projections: Offer a detailed first year income statement, balance sheet and cash flow statement. A good idea is to include these three elements for three years beyond that. Also, give a “break-even analysis” that shows how much revenue is needed to cover the initial investment.
Stress-Test the Projections: Give worst-case, average-case and best-case scenarios of how your business could fare, so you can be financially prepared.
Sources and Uses of Funds: Tell investors how you plan to spend their money and why you need the money. Startup companies often make the error of underestimating expenses, be realistic and research any possible startup costs.
Appendices: Finish your business plan with a supporting documents such as resumes, industry data, credit histories and any relevant information that doesn’t belong in the basic outline of your business.
Venture capital is a male-dominated industry, but it doesn’t have to be.
In the first quarter of 2006, 4.8% of all venture capital money backed female-owned companies. However, female entrepreneurship has risen drastically from 1997 to 2006 by 42%. Another important point is that men and women are nearly tied on the percentage that obtain angel funding, when a proposal is submitted. So what can be concluded from this data is that while there are a large number of female-owned businesses, not enough women are trying to obtain funding from angel investors or venture capital funds. If more female-owned companies tried to attract investors they would stand roughly the same chance of success male-owned companies.
U.S. private equity firms held strong in the first two quarters of 2008, only 3% behind last year’s performance.
Down 14 firms from this point last year, the 185 U.S. private equity firms managed to raise $132.7 billion in the first six months of 2008. Although the industry is declining, the number shows that private equity is still a large part of the economy.
Leveraged buyout fund-raising fell 20% compared to last year, but venture capital and mezzanine funds have countered big buyout’s weak performance. Venture capital fundraising increased 15% and mezzanine funds set a first half record of $24 billion (almost entirely from Goldman Sachs Capital Partners’ $20 billion fund).
European private equity also had a fortunate first half of the year, increasing %15 from this time last year.
If you’re looking for a job in private equity, here is a great tool.
Private Equity Jobs Database tracks hundreds of private equity jobs and is routinely updated and monitored. In addition, it lists profiles of major private equity recruiters and has a number of resource links. Basic access is free and upgrading to premium is $60 for three months (with a 100% money back guarantee).
Zero Venture-backed IPOs in Second Quarter of 2008 As I recently described, an initial public offering is when a company first issues common stocks or shares to the public. This is a critical opportunity for venture capital investors to collect returns, but the National Venture Capital Association reports that there were no venture capital-backed IPOs in the second quarter this year.
The number of venture-backed IPOs fell from an average of seven per month last year to zero in the second quarter of 2008 (April, May June). Mergers and acquisitions volume similarly declined in Q2, the number of M&A deals dropped from 70 to 50 in the last quarter.
This illustrates the recent decline in the venture capital industry following the boom that began this decade, the NVCA President said that the start-up industry’s fall “represents a serious problem that will have long reaching economic implications if not addressed.”
The Private Equity Analyst is a comprehensive monthly print newsletter that provides news and information about all areas of private equity from venture capital to mezzanine financing. Started in 1988, the Private Equity Analyst has built a reputation as a top news source for private equity firms. Just one catch, a one year subscription is $1495!
Private equity investors are a great source of capital for companies, here’s a profile of private equity investors.
Private equity investors are generally wealthy individuals who commit large sums of money to start-up businesses. Many private equity investors are successful entrepreneurs who offer small businesses helpful advice, experience, contacts and of course, money. Private equity investors search for companies with high-growth potential, hoping for high returns of their investments. A private investor is usually easier to attract than a venture capital fund. This is not to say that private investors will throw away their money, but with a good business proposal and some luck many small businesses have secured large investments this way. For small businesses raising capital, private equity investors can be a great alternative to larger venture capital and private equity funds
The Private Equity Investment Group has over 5,000 members and connects private equity, venture capital, and angel investor contacts to create strategic partnerships, refer deals, trade models and co-adapt new strategies. In the future, the Private Equity Investment Group plans to hold webinars and networking events.
A private equity fund is a pooled investment vehicle that invests in unregistered equity securities. A private equity fund is managed by a private equity firm. The fund invests directly in a private company or “buys out” a public company resulting in a delisting of public equity. Capital investments from the fund are used to strengthen and expand a healthy business, or restructure the operations of an underperforming business. Private equity investors make a long-term commitment hoping for a reversal of a distressed company or an event that results in a liquidation of assets like the a big company purchasing the company or an Initial Public Offering.
PrivateEquity Directory:includes a recent list of 1,252 private equity firms, with simply a link to the firm.
Venture Choice Directory: a venture capital- and private equity-focused directory that is constantly updated to include new firms and remove expired ones.
VCLocator Directory: includes 6000+ venture capital firms, VClocator boasts of having more venture capital firms than all its competitors.
Private Equity Info Directory: A comprehensive collection of directories to many investment avenues such as private equity, mezzanine investors, and small business investment companies. (Pricey subscription needed though.)
According to the WSJ, the venture capital industry is shrinking dramatically. The dot com bubble’s burst led many to abandon the once-fertile venture capital industry, and in recent years the number of venture capital firms has fallen.
In 2007 the number of venture capital firms investing in U.S. companies was 844, 40 less than in 2006. This compares to the almost 1,200 firms in 2000–during the dot com period. Another startling figure is that of these 844 firms, 224 did not fund any new companies. The National Venture Capital Association’s President Mark Heesen predicts even further decline in future.
This year the industry has shown signs that the decline in venture capital firms will continue. Venture Beat reports that in the first quarter of 2008 venture investment fell 8.5%.
John Cook remarks on the effect on Seattle’s venture capital industry. Although there are many high-profile venture capital firms in the region, there is a subtle decline in Seattle.
Venture capital firms are typically private partnerships funded by pension and endowment funds, corporations, venture capitalists, and largely wealthy individuals. The venture capital firm opens a fund, pooling money from investors to expand smaller companies.
Starting a Fund
A venture capital firm will attract investors and pool their money in a fund. This fund is operated by the venture capital firm which discovers promising startup and smaller companies to invest the fund’s money in. The purpose is to profit from the company’s future success. Investors supply various amounts of money, amassing a substantial sum for the manager to invest.
Investing
The firm or fund has an investment profile and invests accordingly, for example a fund may focus on electronics and invest in emerging electronics companies. The hope is that the capital provided to the company will help it grow to a point that it generates high returns to the venture capital fund’s investors. Profits result from expansion through an initial public offering (IPO) or another company purchasing the company. If either a public offering where the public is able to buy shares of the company or an acquisition occurs then the fund cashes out. If the venture is a success the investors receive more money than their initial investment.
Risk
Venture capital is naturally a risky business and venture capital firms suffer many failed investments, but a company that succeeds often generates huge profits that overshadow other losses for the fund.
Expanding startup companies hope to attract both angel investors and venture capital funds. These investors provide the capital that is necessary for getting a small company off the ground. Although angel investors and venture capital funds serve a similar function, there are important differences between the two.
The key differences between angel investors and venture capital funds:
By Definition: Angel investors are affluent, private investors who invest in smaller companies. Although some angel investors organize into networks or groups and pool investments, angel investors generally invest alone. A venture capital fund is different because it is a substantial pooled investment, drawing on numerous wealthy investors.
Investment Size: Angel investors typically invest under $1 million. An angel investor’s investment is used to expand the company to the size that attracts larger venture capital investments, mostly above $1 million.
Investment Focus: Angel investors focus on the earlier stages of a company, expanding the company with the angel’s investment to a more marketable size toward venture capital funds. Venture capital funds do invest in the earlier stages, but venture capital funds also invest with the purpose of taking the company to the IPO stage and beyond.
Attracting Investments: Angel investors vary in investment areas and act privately. Venture capital funds generally focus on emerging sectors like technologies, and have greater accountability for investments. This makes attracting angel investors seem easier than a venture capital fund’s investment
Expected Returns: Both angel investors and venture capital funds tend to expect high returns for their investments to counter the frequent losses. Stereotypically, angel investors expect a slower, smaller return on investments than venture capital fund.
Venture capital fund managers demand considerable payment for their services, this fee is negotiated with investors in the contract. Venture capital fund managers are compensated similarly to hedge funds, recieving an annual fees involving a share of the invested money and the success of the fund. A common arrangement is 2 and 20: every year the manager receives 2% of the capital invested and 20% of net profits of the fund. This is not a rule and often varies with different investors and companies. In recent years venture capital funds have increased from the 20% arrangement to compensate for frequent failed ventures.
An angel investor is a wealthy individual who provides capital to an expanding small business. An angel investor typically invests his own private money, unlike collective venture capital funds. The angel invests in the startup process and has a personal stake in the company’s success.
Similar to venture capital investments, angel investors are vulnerable to a high risk of failure, but if the company is successful the possible returns are equally high. Startup businesses often fail, costing angel investors large sums of money. Angel investors compensate for this by demanding a high percentage of any success. Angel investors are an important way for small businesses to gather the capital necessary for major expansion.
vFinance offers a comprehensive directory of over 1,400 venture capital companies. The only drawback is that it is a couple years old, so many of the companies listed no longer exist and there are many companies that are not listed. Nonetheless, this directory is a great resource. It provides a short summary of the company and its recent progress.
Venture capital firms are typically private partnerships funded by pension and endowment funds, corporations, venture capitalists, and largely wealthy individuals. The venture capital firm opens a fund, pooling money from investors to expand smaller companies.
Starting a Fund
A venture capital firm will attract investors and pool their money in a fund. This fund is operated by the venture capital firm which discovers promising startup and smaller companies to invest the fund’s money in. The purpose is to profit from the company’s future success. Investors supply various amounts of money, amassing a substantial sum for the manager to invest.
Investing
The firm or fund has an investment profile and invests accordingly, for example a fund may focus on electronics and invest in emerging electronics companies. The hope is that the capital provided to the company will help it grow to a point that it generates high returns to the venture capital fund’s investors. Profits result from expansion through an initial public offering (IPO) or another company purchasing the company. If either a public offering where the public is able to buy shares of the company or an acquisition occurs then the fund cashes out. If the venture is a success the investors receive more money than their initial investment.
Risk
Venture capital is naturally a risky business and venture capital firms suffer many failed investments, but a company that succeeds often generates huge profits that overshadow other losses for the fund.
The 2007 Entrepreneur list of the top 100 venture capital firms are ranked by the number of deals the firm made in 2006. The following are the top ten, click here for the full venture capital firms list:
Venture capital typically refers money provided by investors to finance new businesses. An investor predicts that an emerging company has a high-growth potential and provides initial funding for the company. Generally, investors offer cash in exchange for shares in the company. Like other traditional stock investments, the performance of the company effects the gains or losses for the investor. If the company does poorly, the investor’s shares lose value. If the company does well on the other hand, the investor is rewarded with a valuable share that he can retain or cash out for more money than the initial investment. This is the goal of venture capitalists: to predict a company’s success and provide necessary capital for the company’s expansion, and then net a high return when the company succeeds. There is a shared interest between venture capitalists and the small businesses. Businesses hoping to grow but lacking the necessary money look to venture capital as a way of funding growth. Venture capital is classified as a private equity investment.
