Posts Tagged ‘Raising’
March 5th, 2011 | 
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Most entrepreneurs often feel that venture capital should be raised prior to or immediately at the onset of a business. However, this is not often the case. Venture capital, as discussed in previous articles, can be raised in several different stages. In order to finance your growing business, you can skip the steps regarding startup/seed capital and move directly into mezzanine capital. This is especially true if you business is operational, profitable, and has an extensive operating history.
When looking for venture capital it is often difficult to determine when and what type of capital is required. Again, the most advanced your business (and the more profitable) the easier it will be to secure an investment from a venture capital firm. In some instances, it may be appropriate to raise capital only when your business intends to undergo an aggressive expansion. This will not only ensure that you will have an easier time raising capital, but your business will also meet the growth criteria required by venture capitalists. However, this is not only the case. In regards to companies that have proprietary technology or a highly unique business model, it may be appropriate for you to being to raise venture capital prior to the onset of operations.
As has been a common theme throughout these articles, there is difficulty in obtaining private capital – and by having either an established business that is growing, proprietary technology, or a highly unique business plan – you will be in a much better position to acquire funding from private investment firms.When determining when to raise capital, you may want to consult with your certified public accountant prior to entering this process. In our next article, we will discuss the general costs of raising capital.
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Not only is the capital raising process difficult, but it can also be very expensive. As we have discussed earlier, when looking for venture capital you may or may not need a private placement memorandum. This document can only be produced by an attorney. The costs related to developing a private placement memo can range from ,250 to ,000 depending on the complexity of the investment, the experience of the attorney drafting the document, and whether or not there will be filings required with the SEC or your state’s securities regulatory agency. Additional cost factors also include having a proper business plan prepared. The cost of a professionally developed business plan can range from 0 to ,000 depending, again, on the complexity of your business, the amount of capital that you are seeking, and the number of financial metrics that need to be calculated in order to properly pitch it to a VC firm. If you hire a capital introduction firm then you may need to provide a significant percentage of the capital raised to this firm. As we have discussed earlier, capital introduction firms and private placement brokerages specialize in directly raising the necessary capital from investors for your business. These fees can range from 5% to 10% of the aggregate amount of capital raised.
Finally, there are the ancillary costs of looking for venture capital. You will need to factor in travel costs, hotel costs, car rental costs, and other costs associated with meeting with venture capitalists. Printing costs (for the materials to be presented to VC firm) should also be considered. Most professionals indicate that the costs associated with raising venture capital (assuming that you do not use a capital introduction firm) are about 3% to 5% of the aggregate amount of capital sought.
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Raising Venture Capital – The Stages
Raising Venture Capital â The Stages
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Home Page > Business > Entrepreneurship > Raising Venture Capital â The Stages
Raising Venture Capital â The Stages
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Posted: May 08, 2010 |Comments: 0
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Raising venture capital often occurs in stages. Below is an overview of the stages of the process of obtaining funding as you are looking for venture capital:
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Seed Capital â Startup Capital: This is typically the first stage of the process when raising funding for your new business venture. At this point, you should have a completed business plan, an incorporated business, and all other appropriate documentation in place in order to secure a capital commitment from a venture capital firm. The appropriate documentation, as discussed earlier in our articles, includes your business plan, private placement memorandum (if required), PowerPoint Presentation, and a subscription agreement. This round of capital is usually the most expensive as at this stage in your business operations â you are an unproven business. The seed capital or startup capital phase is often also referred to as first stage funding/financing.
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Mezzanine Capital or 2nd Round Capital â This round of capital typically occurs within one to two years of launching your business’ operations. Sometimes, it is not required if your firm is producing enough positive cash flow to reinvest into your business. This round of capital is far less expensive than the initial first round of venture capital funding. This is especially true if your venture is currently profitable. Again, venture capital firms often have the right of first refusal to make additional investments into your business, so it is possible that you may only work with one venture capital firm through the life of your business. It should be noted that some venture capital and private equity firms only specialize in mezzanine capital.
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Final Stage Capital â IPO: Unless your business is expected to remain as a privately held corporation, then typically your final stage of capital is related to the initial public offering of your business. This stage is omitted if your business will be sold privately to a larger corporation. However, this usually provides less of a return for both you and a venture capital firm. In our next discussion, we will discuss initial public offerings and how it can impact looking for venture capital.
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Looking For Venture Capital is a specially designed website for entrepreneurs that are seeking to raise capital for their startups, small businesses, and expanding existing businesses. The focus of the site is on Venture Capital.