By Alvin E. Terry, MBA/ Business Consultant, Dynamic Business Builders
As Investment Bankers they exist with the sole purpose of funding projects that may bring a return for their investors. They actively seek new startups on a daily basis. They can fill the void between sources of funds that might not be readily available from your local Bank. They believe in the entrepreneurial spirit and the passion that drives the businesses of the future. They embrace the leaders of tomorrow hoping that they will be responsible for launching that next success story that brings added value and changes lives.
Investors in Venture Capital firms are typically from Pension Funds, Financial Firms, Insurance Companies, University Endowment Funds, Corporations and Private Individuals. They usually expect a return between 25 to 35 percent per year over the life of the loan. Venture Capitalist possess a wide latitude of understanding. They must like the “story”, the Management Team (Partners) with confidence. High quality ideas that generate high profits will always be their target focus.
The “Markets” that the project focusses on must be able to show returns in the near term. They believe in good industries that are competitive. They have investment profiles established in order to fund the deal. Each deal is structured individually. They do not invest in low growth markets. They identify with competent management, for this is the key to their success. They are interested in projects that are on the cutting edge in their prospective industries or projects that bring totally innovations that they can take to the market first or just in time to reap the early profits that may be there.
The investors that place money into the fund will be industry specific. The amount of direct investment into the fund may range from $1,000,000.00 to $20,000,000.00 or more depending upon the industry, the innovation and the size of the target market. Their commissions range from 6–8 percent of the total amount of the fund expended. Venture Capitalist firms receives between 2-3 percent for its annual operating budget of the pools total capital as a management fee. Sometimes they may partner or group together to diversify portfolios to spread the risk and the dollars. At times they like to get others involved in
- Assessing the risks
- Decreasing the workload
- Assisting in doing Due Diligence
- Managing the deal
This adds credibility to the deal for future Investors. How do they spend their time for the fees that they earn? Below is an example of the activities that take place on a daily basis.
- Soliciting Business 10%
- Selecting Opportunities 5%
- Analyzing Business Plans 5%
- Negotiating Instruments 5%
- Servicing as Directors and Monitors 25%
- Acting as Consultants 15%
- Recruiting Management 20%
- Assisting with outside Relationships 10%
- Exiting 5%
Their incentive is to manage as much money as possible. Sometimes they do not have enough time to nurture and advise. At times they may have a virtual pool of CEO’s to add value and effectiveness to their arsenal. There are many upsides for the Entrepreneurs.
- Not using your own money
- Management Teams that come from Corporations or Universities
Realizing that there is a lot of the heavy lifting that comes with the territory, it’s good to know that with the right minds collaborating together, true dreams can be realized.
You can contact Alvin E. Terry, MBA
Directly at 713-392-9107 or by email at [email protected]
