Destin Rice, MGT 386, November 25, 2008
To gain success and follow up by holding the gains or continuing to excel in excellence, the business world relies heavily on support from investors. Accredited investors are investors who “invest in certain types of higher risk investments, limited partnerships, hedge funds, and angel investor networks” (Wikipedia, 2008).
While these investors are recognized as being risk takers and as being “financially sophisticated,” they generally fall into other categories (Bonds Online, 2006). Accredited investors “generally include wealthy individuals and organizations such as corporations, endowments, or retirement plans” (Wikipedia, 2008). The U.S. Securities Exchange Commission goes even further to state that, “accredited investors may include banks, insurance companies, registered investment companies, business development companies, or small business investment companies” (2008). They may also include “charitable organizations, corporations, or partnerships with assets exceeding $5 million, a natural person who has individual net worth, or joint net worth with the person’s spouse that exceeds $1 million at the time of the purchase of securities or a natural person with the income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year” (U.S. Securities Exchange Commission, 2008).
Before dealing with accredited investors, one should consider the advantages and disadvantages of these investors as well as several questions that should be asked to the investors. One should immediately realize that there are numerous advantages with dealing with accredited investors. Because accredited investors are typically “company insiders and rich people with areas of expertise in corporations and contracts,” they may provide numerous benefits to a company or corporation (CNN Money, 2008). Accredited investors are “generally either wealthier investors or individuals with access to more information about a company and may be less burdensome when raising money” (CNN Money, 2008).
Examples of questions that companies and individuals dealing with accredited investors may ask themselves as well as the investor include:
• What are the state’s security laws?
• What are the federal securities laws?
• How much money are we raising?
• How much money have we already raised?
• How many investors do we plan to target?
• What documents will be provided to our investors?
• What types of filings have been completed?
• What kind of company is this accredited investor?
• Is this an employee benefit plan?
• Does the plan have total assets in excess of $5 million?
• Does the bank, insurance company, or registered advisor make the investment decision?
• Is this a business in which all the equity owners are accredited investors?
• How much is the individual’s net worth?
• What is the natural person’s income? Joint income with spouse?
Works Cited
BondsOnline (2006). Investors. Retrieved November 25, 2008, from
http://www.bondsonline.com/Accredited_Investor_def.php
CNN Money (2008). Accredited Investors: Do you need them? Retrieved November 25, 2008 from, http://askfsb.blogs.fsb.cnn.com/2008/07/23/accredited-investors/
U.S. Securities and Exchange Commission (2008). Accredited Investors. Retrieved
November 25, 2008 from, http://sec.gov/answers/accred.htm
Wikipedia (2008). Accredited Investor. Retrieved November 25, 2008 from,
http://en.wikipedia.org/wiki/Accredited_investor
Showing posts with label angel investing. Show all posts
Showing posts with label angel investing. Show all posts
Tuesday, December 9, 2008
Venture Capital
Chris Jackson, MGT 386, December 5, 2008
Venture Financing basics provide that venture capital financing is done to provide capital to companies that have started to do business. This type of financing is done primarily by rich investors as well as financial organizations such as investment banks (Basics of Venture Capital Financing, http://finance.mapsofworld.com/equity/basics-of-venture-capital.html). During this process the investor’s only concern is to see some type of return on their investment. As discussed in class, a well developed business plan or a convincing elevator pitch can give these potential investors the ability to interpret what type of business you may be pursuing and how you plan to make it work. Most of all they want to know how you can give them a substantial return on their investment. They will do so by receiving dividends and some ownership in hopes that the company will one day have an Initial Public Offering (IPO), which will benefit everyone that either put time or money into that developing company.
As for the size and scope of the venture capital industry in the United States, “it is enormous,” (The Practical Lawyer, http://files.ali-aba.org/thumbs/datastorage/lacidoirep/articles/PL_TPL0702-Tannenbaum_thumb.pdf). In 2005, there were 2,200 reported venture capital transactions at an estimate of close to $20 billion in volume. That number grew in 2006, increasing to an annualized rate of $22 billion of total venture capital transactions. This may only be miniscule when compared to the entire economy in the United States at that time, but has been a booming industry that has continued to increase in volume until recently when our economy went under somewhat of a mini-recession. The Practical Lawyer also states that, “Venture Capital in the United States, however, is more than just another source of capital. It constitutes and industry, a culture, and a mystique that is uniquely American.” As of 2006, there were approximately 798 venture capital firms in the United States, and these firms managed about $236 billion (National Venture Capital Association, http://www.nvca.org/faqs.html).
According to recent studies, “the failure rate can be quite high, and in fact, anywhere from 20 to 90 percent of portfolio companies may fail to return on the VC’s investment,” (My Capital, http://www.mycapital.com/Veneture%20Capital%20101_MyCapital.pdf). Though most of these investments fail, the ones that succeed usually earn a return on investment anywhere from 300 to 2,000 percent. This is an astronomical amount of money, and is one of the reasons that venture capitalists are known as moderate risk-takers. Most venture capitalists provide their investments for the long-term and not so much for the short-term, which provides that they will more than likely back the company even in the roughest of times for the fact that it is their money at stake. Venture Capitalists usually invest in young, private companies that have great potential for innovations and growth.
If you are wondering where these venture capitalists obtain this vast amount of wealth to make such a risky investment, “they raise their funds from institutional investors, such as pension funds, insurance companies, endowments, foundations and high net worth individuals” (My Capital, http://www.mycapital.com/Veneture%20Capital%20101_MyCapital.pdf). There are obviously inherent risks, but if the ideas are good and there is a valid business plan that has the potential for growth and innovation, then companies will find viable opportunities to help them through the seed, start-up, second, third, and bridge/pre-public stages with lucrative success in the balances. For those who do make it, they are considered great success stories and should be validated as such.
Venture Financing basics provide that venture capital financing is done to provide capital to companies that have started to do business. This type of financing is done primarily by rich investors as well as financial organizations such as investment banks (Basics of Venture Capital Financing, http://finance.mapsofworld.com/equity/basics-of-venture-capital.html). During this process the investor’s only concern is to see some type of return on their investment. As discussed in class, a well developed business plan or a convincing elevator pitch can give these potential investors the ability to interpret what type of business you may be pursuing and how you plan to make it work. Most of all they want to know how you can give them a substantial return on their investment. They will do so by receiving dividends and some ownership in hopes that the company will one day have an Initial Public Offering (IPO), which will benefit everyone that either put time or money into that developing company.
As for the size and scope of the venture capital industry in the United States, “it is enormous,” (The Practical Lawyer, http://files.ali-aba.org/thumbs/datastorage/lacidoirep/articles/PL_TPL0702-Tannenbaum_thumb.pdf). In 2005, there were 2,200 reported venture capital transactions at an estimate of close to $20 billion in volume. That number grew in 2006, increasing to an annualized rate of $22 billion of total venture capital transactions. This may only be miniscule when compared to the entire economy in the United States at that time, but has been a booming industry that has continued to increase in volume until recently when our economy went under somewhat of a mini-recession. The Practical Lawyer also states that, “Venture Capital in the United States, however, is more than just another source of capital. It constitutes and industry, a culture, and a mystique that is uniquely American.” As of 2006, there were approximately 798 venture capital firms in the United States, and these firms managed about $236 billion (National Venture Capital Association, http://www.nvca.org/faqs.html).
According to recent studies, “the failure rate can be quite high, and in fact, anywhere from 20 to 90 percent of portfolio companies may fail to return on the VC’s investment,” (My Capital, http://www.mycapital.com/Veneture%20Capital%20101_MyCapital.pdf). Though most of these investments fail, the ones that succeed usually earn a return on investment anywhere from 300 to 2,000 percent. This is an astronomical amount of money, and is one of the reasons that venture capitalists are known as moderate risk-takers. Most venture capitalists provide their investments for the long-term and not so much for the short-term, which provides that they will more than likely back the company even in the roughest of times for the fact that it is their money at stake. Venture Capitalists usually invest in young, private companies that have great potential for innovations and growth.
If you are wondering where these venture capitalists obtain this vast amount of wealth to make such a risky investment, “they raise their funds from institutional investors, such as pension funds, insurance companies, endowments, foundations and high net worth individuals” (My Capital, http://www.mycapital.com/Veneture%20Capital%20101_MyCapital.pdf). There are obviously inherent risks, but if the ideas are good and there is a valid business plan that has the potential for growth and innovation, then companies will find viable opportunities to help them through the seed, start-up, second, third, and bridge/pre-public stages with lucrative success in the balances. For those who do make it, they are considered great success stories and should be validated as such.
Wednesday, October 22, 2008
The Allure of Angel Investing
We didn't get to talk about angel investing in class on Tuesday, October 21. Here's a recent article on Forbes.com that describes how this source of financing is doing. Read more...
Subscribe to:
Posts (Atom)
Posts
