Buena Ventura Pa the venture

Posts Tagged ‘Venture’

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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As we have discussed earlier, and as has been the theme of this website, looking for venture capital is a very difficult and costly process that often requires the assistance of professionals. We recently discussed the concept of the capital introduction firm in a previous article. In this discussion, we are going to expand on that concept. A private placement broker or capital introduction firm specializes in working with venture capitalists in order to get your business funded. In many instances, a reputable and high end private placement broker will take on your case at no cost to you – except if they are successful in raising capital. Typically, and as said earlier, private placement brokers and capital introduction firms take a percentage rate of their successful capital raising efforts.

Many firms work on a “best-efforts” basis which means that even if they only raise a part of the capital you are seeking then they will be owed the fees. However, these fees can be highly negotiable. If you work with a venture capital introduction firm then it may be possible for you to trade some of the cash fees associated with their work for a percentage of your business. However, the percentage of the business that they are seeking may be more than expected. Depending on the potential for your company, it may be in your best interest to pay the fees owed from capital raising services directly rather than providing a capital introduction firm with a percentage of your business.Prior to engaging a venture capital introduction firm or private placement brokerage you should make sure that they are properly licensed by the Securities and Exchange Commission. All firms that engage in this type of activity need to be registered with the SEC and in many instances they must be licensed with the state’s securities regulation bureau.