Venture Capital and Green Technologies

As the “Venture Capital (VC) guy” for the Office of Advocacy, I have been frequently asked whether venture capitalists are truly jumping into green technologies with both feet or are tentatively dipping a toe into the water. The answer is more complicated than those questions suggest, but many VCs are going long and strong into this sector.

In fact, according to the National Venture Capital Association, clean technology investments have increased from 90 deals worth over $550 million in 2005 to 277 deals worth over $4 billion in 2008. Last year, three of the five biggest IPO’s were in the solar industry.

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How to Find Angel Investors Now

Dear Dan: My partners and I have a killer business concept and a polished business plan, but we’ve struck out trying to raise money from friends and family. How do we look for angel investors? — Need an Angel

Dear Need: A recession can be a great time to start a business. The cost of everything from supplies to office space and professional expertise is down, and new market opportunities open up. But finding startup capital can be another matter.

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How to get a second date with a venture capitalist

When it comes to updating the folks who finance the enterprise, you'd think business owners would be weighing whether to write e-mails versus scheduling lunches. Or send them unvarnished reports versus rosy pictures.

But the real challenge is way more basic. Most small-business owners don't bother to stay in touch with their investors at all.

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Why Business Plans Matter

You don't know where to start and don't want to waste time struggling over something that might not get used.

Reality: Everyone you ask for money — the Small Business Administration, bank loan officers and venture capitalists — will ask if you have a business plan. "A business plan is more than a document, it's a process that enables an individual, and more importantly a team, to come together and commit to a business adventure of significant personal and professional risk," says Engel.

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Haven't We Learned Our Lessons from the Dotcom Bust?

Amidst all this financial doom and gloom there's a whiff of a familiar scent in the air. It's the smell of irrational exuberance and, in some camps, both entrepreneurs and venture capitalists are partying like it's 1999. Is this a bad thing? Not necessarily, but remember the dotcoms that were booming in 1999 started bombing a mere year later.

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Can Your Business Benefit from Community Development Venture Capital?

Small businesses that show strong growth potential in communities of economic need may find the funding they seek in an often overlooked financing source known as community development venture capital.

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Ideas to Deals...Live

by Michael Bowers

I’m often pitched by entrepreneurs who have great ideas (and some that don’t) but are living in fantasy land when it comes to raising money because they haven’t articulated how they would turn their idea into a fundable deal. The key is to make it easy for the investor to say yes. Speak to the investor about things that are important to them. Don’t try to convince them that everything they know and have experienced with early stage companies is wrong and you know better.

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2009 Business Plan Series - Part 1 - The Art of Starting

Before we dive deep into the how and what of a business plan, this first part of an ongoing series is focused on the why of starting a business and doing your homework and preparation properly.

You might have heard of the book “Art of the Start” by Guy Kawasaki. It is a great primer on getting ready to write the plan and the process of writing and getting the pitch ready for investors.

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Financing Basics

What you need to know about obtaining capital for your business

While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second. Whether you're starting a business or expanding one, sufficient ready capital is essential. But it is not enough to simply have sufficient financing; knowledge and planning are required to manage it well. These qualities ensure that entrepreneurs avoid common mistakes like securing the wrong type of financing, by money sources.

Before inquiring about financing, ask yourself the following:

* Do you need more capital or can you manage existing cash flow more effectively?
* How do you define your need? Do you need money to expand or as a cushion against risk?
* How urgent is your need? You can obtain the best terms when you anticipate your needs rather than looking for money under pressure.
* How great are your risks? All businessess carry risks, and the degree of risk will affect cost and available financing alternatives.
* In what state of development is the business? Needs are most critical during transitional stages.
* For what purposes will the capital be used? Any lender will require that capital be requested for very specific needs.
* What is the state of your industry? Depressed, stable, or growth conditions require different approaches to money needs and sources. Businesses that prosper while others are in decline will often receive better funding terms.
* Is your business seasonal or cyclical? Seasonal needs for financing generally are short term. Loans advanced for cyclical industries such as construction are designed to support a business through depressed periods.
* How strong is your management team? Management is the most important element assessed by money sources.
* Perhaps most importantly, how does your need for financing mesh with your business plan? If you don't have a business plan, make writing one your first priority. All capital sources will want to see your for the start-up and growth of your business.

Not All Money Is the Same

There are two types of financing: equity and debt financing. When looking for money, you must consider your company's debt-to-equity ratio - the relation between dollars you've borrowed and dollars you've invested in your business. The more money owners have invested in their business, the easier it is to attract financing.

If your firm has a high ratio of equity to debt, you should probably seek debt financing. However, if your company has a high proportion of debt to equity, experts advise that you should increase your ownership capital (equity investment) for additional funds. That way you won't be over-leveraged to the point of jeopardizing your company's survival.

Equity Financing

Most small or growth-stage businesses use limited equity financing. As with debt financing, additional equity often comes from non-professional investors such as friends, relatives, employees, customers, or industry colleagues. However, the most common source of professional equity funding comes from venture capitalists. These are institutional risk takers and may be groups of wealthy individuals, government-assisted sources, or major financial institutions. Most specialize in one or a few closely related industries. The high-tech industry of California's Silicon Valley is a well-known example of capitalist investing.

Venture capitalists are often seen as deep-pocketed financial gurus looking for start-ups in which to invest their money, but they most often prefer three-to-five-year old companies with the potential to become major regional or national concerns and return higher-than-average profits to their shareholders. Venture capitalists may scrutinize thousands of potential investments annually, but only invest in a handful. The possibility of a public stock offering is critical to venture capitalists. Quality management, a competitive or innovative advantage, and industry growth are also major concerns.

Different venture capitalists have different approaches to management of the business in which they invest. They generally prefer to influence a business passively, but will react when a business does not perform as expected and may insist on changes in management or strategy. Relinquishing some of the decision-making and some of the potential for profits are the main disadvantages of equity financing.

You may contact these investors directly, although they typically make their investments through referrals. The SBA also licenses Small Business Investment Companies (SBICs) and Minority Enterprise Small Business Investment companies (MSBIs), which offer equity financing. Apple Computer, Federal Express and Nike Shoes received financing from SBICs at critical stages of their growth.

Debt Financing 

There are many sources for debt financing: banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. State and local governments have developed many programs in recent years to encourage the growth of small businesses in recognition of their positive effects on the economy. Family members, friends, and former associates are all potential sources, especially when capital requirements are smaller.

Traditionally, banks have been the major source of small business funding. Their principal role has been as a short-term lender offering demand loans, seasonal lines of credit, and single-purpose loans for machinery and equipment. Banks generally have been reluctant to offer long-term loans to small firms. The SBA guaranteed lending program encourages banks and non-bank lenders to make long-term loans to small firms by reducing their risk and leveraging the funds they have available. The SBA's programs have been an integral part of the success stories of thousands of firms nationally.

In addition to equity considerations, lenders commonly require the borrower's personal guarantees in case of default. This ensures that the borrower has a sufficient personal interest at stake to give paramount attention to the business. For most borrowers this is a burden, but also a necessity.

Source: http://www.mtsacsbdc.com/web/index.php?module=article&view=27

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