Chase Pruitt, MGT 386, December 11, 2008
It’s my understanding that venture leasing is nothing more than just a creative form of leasing that allows start up companies to finance certain items and equipment it needs to start a business. Basically, this just means that a well established company will lease equipment such as computers and software to early stage companies for a certain interest rate to be paid back in an agreed amount of years.
This type of leasing has a number of benefits for the start up company and would be well worth it. The first and most obvious benefit is that it would save the start up company extra cash that it would have had to spend on purchasing the equipment at full price. This is a crucial benefit because a company that is just starting out would have very little money to spend on all its needs and equipment. This way they are allowed to get the items they need at a cheaper price in which they would eventually pay back with interest once the business took off and started making enough money to pay back its debts. A second benefit of venture leasing is that it will finance a company even when that company doesn’t qualify for a bank loan or any other type of lease. Banks can be especially difficult to get a loan from particularly when it’s for a start up company with more risk than its worth paying for. This way the entrepreneur would be able to start the business without even going to the bank for the loan. Lastly, if negotiations are done wisely, venture capital could be very flexible for the entrepreneur starting his company.
Even with all these benefits and flexibility, a venture capital leaser also must follow certain guidelines to decide if a business will be a good venture lease transaction. According to Pricewaterhouse Coopers, Venture leasers look at several factors which two of the main ingredients of a successful new venture are the caliber of its management team and the quality of its venture capital sponsors (ezinearticles.com/?Venture-Leasing:-Startup-Financing-On-the-Rise&id=7424 - 53k -). Pricewaterhouse goes on to say that a good management team must have experience in the key business functions which are sales, marketing, R&D, production, engineering, and finance.
Venture leasing also has its fair share of risk involved. One risk that a business might face is that if it gets to the point where it cannot pay back its debt then there is a good chance that its equipment will be taken back by the leaser. This is something that would not happen if the equipment was bought out right and therefore owned by the start up company. When starting a business and not having much money this is an easy risk to overlook because in the beginning stages, all the entrepreneur cares about is getting the items and equipment it needs to start its hopefully successful business.
With this all said, venture leasing is a very worthwhile and helpful form of leasing for start up companies. It is still important however, for entrepreneurs to fully look into all their financing options before choosing venture leasing as there might be a more logical financing opportunity out there.
Showing posts with label new venture financing. Show all posts
Showing posts with label new venture financing. Show all posts
Friday, December 12, 2008
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, November 12, 2008
Kiva: Person-to-Person Microlending
Kiva is the world's first person-to-person micro-lending website. Using this site, you can directly to entrepreneurs in developing countries. This is an interesting model to let individual lenders select the person to whom they want to make a loan. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates and track repayments. Then, when you get your loan money back, you can relend to someone else in need. Here's the link: http://www.kiva.org/. Thanks to Scott Ireland for finding this site.
Read a blog posting from a Kiva Fellow in Indonesia.
Read a blog posting from a Kiva Fellow in Indonesia.
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...
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