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Venture Capital Startup Dictionary

February 11, 2008

Here are a few basic definitions when you are looking for money.

Investor - someone who exchanges money for a share of your company.

Angel - an individual who invests a decent chunk of money in your company ($100-500K) in exchange for some ownership. They tend to be entrepreneurs who have made it big themselves and are often less demanding and interfering than venture capitalists. (This is not always true, by the way.)

Venture Capitalist - a person who is a partner in a venture capital (VC) firm who helps find, select, and manage investments made by the VC firm. In general, VCs get their money from limited partners (these can be anyone from rich investors to corporations to pension funds). The limited partners do not have a say in the investments.

Associate - a junior person at the VC firm who holds no power, but will arrogantly act like they do. If you spend a lot of time with an associate, you are probably wasting it.

Principal - a associate whose been promoted. The power of this person depends on the firm. Still not a decision maker, but can blackball you.

One Pager - a one page (usually front and back) describing your company. Includes some history, mini financials, management description, product description, and business strategy. Your business plan in miniature.

Executive Summary - like the one pager, but a little longer. Your abbreviated business plan.

Your Business Plan - a 20-30 page document that will only be read by the associate. It still has to be good though or they’ll think your not taking this seriously.

Here are a few basic definitions when you are looking for money.

Investor - someone who exchanges money for a share of your company.

Angel - an individual who invests a decent chunk of money in your company ($100-500K) in exchange for some ownership. They tend to be entrepreneurs who have made it big themselves and are often less demanding and interfering than venture capitalists. (This is not always true, by the way.)

Venture Capitalist - a person who is a partner in a venture capital (VC) firm who helps find, select, and manage investments made by the VC firm. In general, VCs get their money from limited partners (these can be anyone from rich investors to corporations to pension funds). The limited partners do not have a say in the investments.

Associate - a junior person at the VC firm who holds no power, but will arrogantly act like they do. If you spend a lot of time with an associate, you are probably wasting it.

Principal - a associate whose been promoted. The power of this person depends on the firm. Still not a decision maker, but can blackball you.

One Pager - a one page (usually front and back) describing your company. Includes some history, mini financials, management description, product description, and business strategy. Your business plan in miniature.

Executive Summary - like the one pager, but a little longer. Your abbreviated business plan.

Your Business Plan - a 20-30 page document that will only be read by the associate. It still has to be good though or they’ll think your not taking this seriously.

Pitch Deck - otherwise known as a presentation (see I told you the lingo was different). Usually a Powerpoint presentation that you use when you present to the VCs. If they are really interested, you probably won’t get past the first couple slides. Make those slides count!

Term-sheet - a non-binding offer of the terms under which the VC is willing to invest (see Elements of a Term-sheet).

Pre-Money Valuation - what the VC thinks your company is worth prior to their investment. This will be different than what you think it is worth (see Valuation (for a Venture Capital Investment)).

Post-Money Valuation - what your company was worth before the investment (Pre-Money) plus the investment. Your pre-money was $5 million, the investment is $5 million. Your post-money valuation is $10 million and the VC owns half.

Well, this is a decent list to start. If I think of other VC terms needing defining that are not otherwise defined on the site, I’ll add them here.

Good luck. Term-sheet - a non-binding offer of the terms under which the VC is willing to invest (see Elements of a Term-sheet).

Pre-Money Valuation - what the VC thinks your company is worth prior to their investment. This will be different than what you think it is worth (see Valuation (for a Venture Capital Investment)).

Post-Money Valuation - what your company was worth before the investment (Pre-Money) plus the investment. Your pre-money was $5 million, the investment is $5 million. Your post-money valuation is $10 million and the VC owns half.

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Buying A Franchise Business

February 9, 2008

Buying a franchise business is one of the most difficult decisions you have to take in your life. It is vital that you seek expert advice before buying a franchise. Franchises in UK are becoming more and more popular; many of which can be found on Franchise Select UK. Profits are much higher as compared to previous years. Thus it’s a fantastic opportunity for better earning.

The initial investment should be considered first before buying a franchise business. Finance Select UK for instance start at only £6595. Then you must check whether your proposed business can be a success in that particular area where you are going to start the franchise.

Better choose a franchise which is nationwide so that there is more chance for getting more customers while compared to local competitors. If you select a nationwide brand you should follow all the criteria followed by them. Please make a detailed report of the trading history of the franchise you have decided to buy.

Ask franchisor the contact details and the trading details of an existing franchise.

In the case of new franchise companies, it’s very difficult to get references from other people who are running the franchise, but they tend to offer incentives and discounts to get you on board and sometimes getting in at the start has its rewards.

Franchisor should provide proper training for better operation of the franchises. Training should be based on the business methods followed and the way of implementation of those methods. The franchisor should provide ample support for all the business related activities. Franchisor should be able to handle various issues and disputes that may arise. You should carefully verify the agreements related to the renewal and resale of the franchise.

Check whether the franchise company is a member of franchise association. In United Kingdom, British franchise association have adopted several policies for better operation of the franchise business. By: Franchise Select UK

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Top 10 Reasons Small Businesses Fail

December 22, 2007

Every time a small business fails I get dismayed. The owners of a new business have often staked their entire capital on a new venture and they stand to lose a lot more than if a big company fails in their new venture. Before you start a new business familiarise yourself with the top 10 reasons why many new businesses fail.

1. The manager is incompetent

Most small businesses fail because the owner does not have the knowledge to run a business properly. It is advisable to do a basic business course before starting a new venture.

2. Finances are not in place

Many people start out in business without any idea of how much money is really required. If you do not know how to write a business plan get your accountant to help you. In any new start-up cash flow is king and without proper funding even the best idea will fail.

3. The Owner gives up too quickly

Any new business will be lucky to break even in their first year. Many people new to business often assume that they are going to make a fortune within 12 months. In reality less than 80% of new start-ups make a profit in their first year.

4. Advertising

There is zero point in doing a single leaflet drop to all your potential customers. There is no point in doing a single advertisement in your local newspaper. Advertising is all about repetition. Many of your potential customers will not buy your products until they have seen your marketing material at least half a dozen times.

5. Branding

Every single piece of your company has to scream out your brand including your brochures, websites, delivery vans and the uniforms that you and your staff wear.

6. Ability to close the sale

This is really an art form in itself. Some people are naturally good closers but others have to learn by reading and studying the art of closing a sell. The more you practice the better you will become.

7. Location

Location is very important to the chances of your businesses survival. Often you will have to pay more for a decent location but it can make the difference between just getting by and turning a decent profit.

8. Ability to get on with other people

We all know that we have to treat our customers with respect but what about our suppliers. If you do not pay your suppliers on time they will start quoting you higher prices. If you are rude to them they might stop doing business with you altogether.

9. Lady Luck

Some people are really unlucky; there is no getting away from this. Just hope and pray that Lady Luck smiles at you, especially in the first year.

10. Demand and USPs

Small businesses often overestimate the demand and usually have no unique selling proposition built in to their products. If people only ever need to buy one of your widgets and you make millions, chances are that you are heading for a point of no return.

Examine all the points above. If you feel that you have an answer to most of them then you are ready to take the plunge and start your own business. by: Naz Daud

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Business Planning - A Good Business Development Strategy is Crucial for Success

September 22, 2007

As part of my consulting practice, I read and review business plans written both for venture capitalists and for grant applications. The weakest part of every business plan is always how will the company get from today to “the dream” five years out.

Usually, there is a pretty good description of what will happen in the next six months and a decent description of what will happen in five years, but there is nothing in between.

Technical entrepreneurs have a good handle on what product development they need to do to get the product into a usable form. They understand the costs and the time involved. However, once the product is developed, they seem to be at a loss as to what to do next.

The lack of a business development executive early in the process often leads to the product being developed in a vacuum. There is a bit of a chicken and egg problem here: start-ups don’t feel like they can afford a business development person until they sell product and they can’t figure out how to sell a product without business development.

Also, I’ve noted that a number of engineer or scientist CEOs tend to discount the role of business development, as if the science behind the product is really what sells the product. This is just not true - if it was true, universities would be a lot richer.

A company is a machine, each part is equally as important as every other part. For instance, you may have the hottest, top of the line engine in your car, but without tires, the car isn’t going anywhere. And continuing on with the car analogy, you can purchase cheap, junky tires. If you do, your car won’t perform at its best and will eventually crash and burn.

A good business development executive will plot each step of the way how your product will go from prototype to dollars in the bank account. At the early stages of your company, if you cannot afford to hire a business development exec, look for an adviser who has performed the role for other companies and listen to him or her carefully. Your business development plan should include

• An Assessment of the Market Opportunities - Who is it who might want to buy your product? What do they have now? What is their purchasing cycle? Who at that company actually makes the purchasing decision?
• Competitive Analysis - Who is trying to sell into the same space? Why is their product worse? Why is it better? Don’t forget inertia as a competitor. As an example, everyone should have a will, but many people do not because they just don’t get around to it.
• Lead Generation - Once the market is narrowed down, you need a good strategy for how you are going to find the people who want your product.
• Follow-up Sales Activity - This is broken into two categories, one pre-sale, one post-sale. You should have a strategy for how to deal with potential clients who have been contacted, but are not interested at this time. You also need a strategy for reconnecting with the customers once the sale is complete. Even if you do not think they will need another product from you, they may be able to give you a referral.
• Pipeline Development - There should always be another customer in the pipeline. Without a strong pipeline of continuous customers, you will be unable to forecast sales and are likely to get caught short on cashflow.

Don’t neglect the business development strategy when building your business plan. If you are planning for five years out, know what you will be doing over the next six months, year, two years, three years, and so forth.

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Hello world! - Connection Charts

September 14, 2007

Connection Charts is your connection to the world of business and finance. Here you can read different business principles and get the latest trends and news about the business world. Find out what’s hot to invest in and what’s not. If you are a business person, you will enjoy reading through Connection Charts articles.

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