For
fledgling companies, or those in need of an injection of
capital
for expansion or improvement in profitability, a very
attractive
way of raising money is through Venture Capital.
This
method is particularly attractive to the company which
has
gone public but has not been around along enough to
gain
full Stock Exchange listing. Companies in this situation
can
still sell shares to the public, but by the company being
unlisted,
marketing these shares is relatively difficult.
Investors
are generally less willing to invest in companies
without
a stock market listing because they know
that,
should
they wish to dispose of their stock, finding a suitable
buyer
will be much less easy than for a listed company.
Because
the Government, particularly in recent years, is
committed
to encouraging business enterprise there has
been
a rapid and welcome increase in the number of
institutions
able to supply venture capital to new and
expanding
businesses.
It
is generally accepted in the business world that the initial
and
ongoing profitability of new companies is greatly
enhanced
by early investment of working capital. This
realization
has led to a flourishing venture capital market.
There
are many venture capital agencies operating in Britain
today.
Their job is to attract investment from corporate and
individual
investors and allocate the money to new and
expanding
businesses. These venture capital agencies charge
a
high rate of commission for supplying venture capital, but
only
if the business which they are financing is successful. If
the
business should fail, they attempt to
recoup whatever
cash
they can to return to the investors.
Often,
if a firm which they have invested in fails completely
they
will simply write off the investment. Investors know that
this
kind of venture capital is relatively high risk. They are
prepared
to take this risk because of the potentially much
higher
returns than can normally be achieved by simply
buying
shares in already established business.
Raising
venture capital is a particularly suitable method of
financing
a new or expanding business which is not ready for
stock
market flotation. The investors own a percentage of the
company
directly proportional to the amount of their
investment.
It is not uncommon for a company to make a
successful
start with the aid of venture capital and later, when
established
and operating as a public limited company, for
the
managing owners to buy out the sleeping partners who
have
supplied a large part of the initial investment to get
things
up and running.
Most
banks now have a venture capital subsidiary and a
large
number of specialist venture capital funds are also
available.
To be eligible for a large investment of this type of
funding
you need to have a sound business idea and a
realistic
and properly presented business plan. It is not within
the
scope of this guide to show you how to construct a
business
plan. There are many excellent books on this
subject
and by looking through titles in the business and
commercial
section of a good public library and good
bookshops,
you will find all the information you need
concerning
the creation of a professional business plan.
When
you have a good business idea for a new venture or a
realistic
set of proposals to make a failing company
profitable
you should construct a business plan and cash
flow
forecast. Take this to venture capital lenders, either
through
your bank or from a private source, and providing
your
ideas are realistic and your business plan is thorough
and
professionally presented, you can have access to
hundreds
of thousands or even to millions of pounds in
capital.
An
alternative method of attracting venture capital is to
advertise
directly for investors in your new or expanding
business.
Simply place classified advertising in the
appropriate
section of quality newspapers and specialist
financial
publications. Ads such as, for example, "Funding
required
for Business Expansion" or " capital Required for
Exciting
and Profitable New Venture", will attract the interest of
those
who have money to invest.
When
you receive a response to your advertising, arrange to
meet
with th interested parties and give them a presentation
of
your business proposals. Always act in a professional
manner
and appear confident and knowledgeable at all times.
Sell
yourself and your idea in the correct fashion and the
necessary
capital will be forthcoming.
You
might be surprised how many previously inexperienced
entrepreneurs
have started in this way. Simply by showing the
right
kind of get up and go ideas to the right kind of people,
it
is amazing how much money you could attract. There is
billions
of pounds of money circulating around in our
economy
every day. If you present yourself as a professional
businessman
or woman, there is no reason why you should
not
get yourself a share of it.
The
venture capital is, naturally though, only the beginning.
Once
you have acquired the funding you need, you must
ensure
that the capital is put to work in the most efficient
,manner
possible. You must do everything in your power to
make
a success of the business which you have gone to all
the
trouble of obtaining funds for. A great many potentially
successful
businesses fail because they are underfunded in
their
early stages, ensure that your new enterprise is properly
financed
and your chances of success are immensely
increased.
Managing
to attract significant investment should not leave
you
feeling complacent about the day to day running of the
business
though. Throwing money into any business, good or
bad,
will always make things easier. However, just because
you
have managed to persuade investors that yours is a
worthy
cause should not distract you from your prime
objective,
that of making the company as profitable as
possible.
The investors are not giving the money away. They
are
taking a calculated risk in investing in your business
because
they hope to achieve a profit in exchange for putting
up
their cash. So, you should never attempt to raise venture
capital
for any enterprise that you are not confident can be
made
into a success.
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