With so much talk of crowdfunding in the air we probably need to start asking the question on whether crowdfunding will be asking over from VC firms in providing the much needed business finance for the 1000's of startups needing seed money and not finding it anywhere at the moment.
Recently, Fred Wilson, a famous VC at Union Square Ventures, proffered a rather pessimistic assessment of the future of his industry in the wake of the JOBS Act and the resulting move to equity crowdfunding. Wilson sees great potential for entrepreneurs using crowdfunding portals to raise capital. But for the problematic VC industry, the news isn’t so good. His thesis is that it’s better right now to be an entrepreneur than to be a VC. In his own words, “Venture capital is becoming a bad business.”
In his estimation, Wilson sees families investing one percent of their assets in crowdfunding, which translates to a $300 billion bonanza for entrepreneurs and start-up companies. This process could start by the end of this year, when the first equity crowdfunding portals will go live. We are all waiting for the Securities and Exchange Commission to finish making rules, which are due by year’s end. Wilson isn’t particularly sanguine about the returns on these investments, but he doesn’t discount the lottery mentality that will probably drive crowdfunding investing despite the risks.
Currently, VC firms receive about $30 billion a year in investments from large institutions and banks. This is only about four percent of the investors’ portfolios, which may reflect the fact that the VC market has underperformed the stock market in the past two decades. Apparently, about $15 billion of that annual investment goes up the chimney because of bad investments. In other words, the best VCs can do is put $15 billion to productive use each year. This begs the question – who will figure out how to intelligently employ $300 billion in crowdfunding investments?
A company can only raise $1 million per year via crowdfunding. For VCs and angel investors, this is chump change. Angel investors regularly invest much larger sums – in recent years, Russian, Middle Eastern and other angel investor have sweetened the VC pot $1 to $2 billion annually. How will $300 billion in crowdfunding “casino money” be allocated to so many small businesses without overwhelming the system? Wilson doesn’t have the answer, but he does have a recommendation to VCs – become entrepreneurs or, if you can believe it, bloggers! While crowdfund blogging is the most noble of professions (ahem), it’s more likely that VCs will simply adapt to the new environment. Wilson offers five options:VV
1. Make investments in obscure niches rather than following the crowd.
2. Cut by an order of magnitude the amount of money you raise.
3. Become angel investors.
4. Become leaders in the crowdfunding industry by making recommendations of companies they think are worth funding.
5. Retire.
Showing posts with label business finance. Show all posts
Showing posts with label business finance. Show all posts
Thursday, August 2, 2012
Venture Capital vs Crowdfunding
With so much talk of crowdfunding in the air we probably need to start asking the question on whether crowdfunding will be asking over from VC firms in providing the much needed business finance for the 1000's of startups needing seed money and not finding it anywhere at the moment.
Recently, Fred Wilson, a famous VC at Union Square Ventures, proffered a rather pessimistic assessment of the future of his industry in the wake of the JOBS Act and the resulting move to equity crowdfunding. Wilson sees great potential for entrepreneurs using crowdfunding portals to raise capital. But for the problematic VC industry, the news isn’t so good. His thesis is that it’s better right now to be an entrepreneur than to be a VC. In his own words, “Venture capital is becoming a bad business.”
In his estimation, Wilson sees families investing one percent of their assets in crowdfunding, which translates to a $300 billion bonanza for entrepreneurs and start-up companies. This process could start by the end of this year, when the first equity crowdfunding portals will go live. We are all waiting for the Securities and Exchange Commission to finish making rules, which are due by year’s end. Wilson isn’t particularly sanguine about the returns on these investments, but he doesn’t discount the lottery mentality that will probably drive crowdfunding investing despite the risks.
Currently, VC firms receive about $30 billion a year in investments from large institutions and banks. This is only about four percent of the investors’ portfolios, which may reflect the fact that the VC market has underperformed the stock market in the past two decades. Apparently, about $15 billion of that annual investment goes up the chimney because of bad investments. In other words, the best VCs can do is put $15 billion to productive use each year. This begs the question – who will figure out how to intelligently employ $300 billion in crowdfunding investments?
A company can only raise $1 million per year via crowdfunding. For VCs and angel investors, this is chump change. Angel investors regularly invest much larger sums – in recent years, Russian, Middle Eastern and other angel investor have sweetened the VC pot $1 to $2 billion annually. How will $300 billion in crowdfunding “casino money” be allocated to so many small businesses without overwhelming the system? Wilson doesn’t have the answer, but he does have a recommendation to VCs – become entrepreneurs or, if you can believe it, bloggers! While crowdfund blogging is the most noble of professions (ahem), it’s more likely that VCs will simply adapt to the new environment. Wilson offers five options:VV 1. Make investments in obscure niches rather than following the crowd.
2. Cut by an order of magnitude the amount of money you raise.
3. Become angel investors.
4. Become leaders in the crowdfunding industry by making recommendations of companies they think are worth funding.
5. Retire.
Recently, Fred Wilson, a famous VC at Union Square Ventures, proffered a rather pessimistic assessment of the future of his industry in the wake of the JOBS Act and the resulting move to equity crowdfunding. Wilson sees great potential for entrepreneurs using crowdfunding portals to raise capital. But for the problematic VC industry, the news isn’t so good. His thesis is that it’s better right now to be an entrepreneur than to be a VC. In his own words, “Venture capital is becoming a bad business.”
In his estimation, Wilson sees families investing one percent of their assets in crowdfunding, which translates to a $300 billion bonanza for entrepreneurs and start-up companies. This process could start by the end of this year, when the first equity crowdfunding portals will go live. We are all waiting for the Securities and Exchange Commission to finish making rules, which are due by year’s end. Wilson isn’t particularly sanguine about the returns on these investments, but he doesn’t discount the lottery mentality that will probably drive crowdfunding investing despite the risks.
Currently, VC firms receive about $30 billion a year in investments from large institutions and banks. This is only about four percent of the investors’ portfolios, which may reflect the fact that the VC market has underperformed the stock market in the past two decades. Apparently, about $15 billion of that annual investment goes up the chimney because of bad investments. In other words, the best VCs can do is put $15 billion to productive use each year. This begs the question – who will figure out how to intelligently employ $300 billion in crowdfunding investments?
A company can only raise $1 million per year via crowdfunding. For VCs and angel investors, this is chump change. Angel investors regularly invest much larger sums – in recent years, Russian, Middle Eastern and other angel investor have sweetened the VC pot $1 to $2 billion annually. How will $300 billion in crowdfunding “casino money” be allocated to so many small businesses without overwhelming the system? Wilson doesn’t have the answer, but he does have a recommendation to VCs – become entrepreneurs or, if you can believe it, bloggers! While crowdfund blogging is the most noble of professions (ahem), it’s more likely that VCs will simply adapt to the new environment. Wilson offers five options:VV 1. Make investments in obscure niches rather than following the crowd.
2. Cut by an order of magnitude the amount of money you raise.
3. Become angel investors.
4. Become leaders in the crowdfunding industry by making recommendations of companies they think are worth funding.
5. Retire.
Sunday, July 22, 2012
South African Crowdfunding
Today South Africa is one of the largest emerging consumer
markets, and requires working capital to operate, to grow and to compete
successfully in sectors with future potential, such as agro-industries, solar
energy, business finance, mobile phones, gold mining and advertising
industries.
Unfortunately, there are very few accredited angel investors and
venture capitalists who one could approach with your business plan. The continent’s banks rarely
lend to early-stage entrepreneurs and small businesses. Most international
investors hesitate to provide capital to African startups. Anglo-Saxon, Chinese
and Arab investment funds focus only on mostly large corporate entities.
A new financial instrument, with very flexible rules, could
strengthen small business growth in South Africa and could wind up changing the
entrepreneurial landscape for the better. Initially developed in the United
States, Crowdfunding allows users to submit projects that have potentially had
difficulties receiving traditional funding (from banks, venture capitalists,
angel investors…) by raising small amounts of money from a large number of
ordinary individuals (Internet users, network of contacts, friends, and
small-scale investors).
Its purpose varies, from artists seeking support from fans, to small
businesses looking for funding, to technology, to political campaigns, to
citizen journalism or organizations dedicated to disaster relief.
Crowdfunding platforms give entrepreneurs new tools to describe
their investment opportunity and people to become investors in these
opportunities for very little money. There is no legal obligation to hire
lawyers or advisors to assist in the fundraising process.
The project initiators disseminate the information using their
social networks and encourage many other people sharing the same interests in
their networks to do the same.
In addition, crowdfunding is an excellent way for entrepreneurs to
test and improve their products/services through these online platforms and it
provides a forum of feedback from the internet community. If the projects do
not reach its funding goal after time expires, it would mean that the products
or services do not meet the public needs, requirements and expectations and some
changes need to be made. Finally, one of the advantages of crowdfunding is that
project supporters can raise money without giving away any equity in their
business like they would have to do with venture capitalists.
Kickstarter, one of the pioneers of crowdfunding, has implemented a
huge number of successful projects in the United States and has demonstrated
convincingly the viability of the concept. Given that the sector exhibits huge
growth potential, www.McKenson-Invest.com , an online platform connecting investors and entrepreneurs, is
currently undergoing major changes in order to become a true crowdfunding
platform for all kind of projects in South Africa. One of the Obama
Administration’s initiatives, which have been the subject of profound debate in
financial and economic circles in the United States, may be of interest to the
business landscape in South Africa. In November the House of Representatives
passed a bipartisan bill, the Entrepreneur Access to Capital Act, which would
allow anyone to raise startup capital for their business, up to $10,000.00 via
the Web (or up to 10% of one’s income, whichever is less) , with a cap for
companies at $1 million and provides a Crowdfunding exemption from SEC registration.
Donors will be considered as true early-stage investors because they will
participate in the company’s capital as partners or shareholders. Under current
U.S. law, the sale of equity in private companies is limited to “accredited
investors”. The bill that was passed in November provides a Crowdfunding
exemption from SEC registration.
The enormous potential remains largely untapped in South Africa,
with only a fledgling sector in Europe, which is also predicted to have one of
the brightest futures.
Crowdfunding platforms could help more early-stage entrepreneurs
launch and develop their business idea in South Africa. The representatives of
economic authorities should quickly implement a robust legal and regulatory
framework in order to promote and encourage crowdfunding on the continent.
The Regional Stock Exchange, which handles transactions for eight
States of West Africa (Benin, Burkina Faso, Guinea Bissau, Ivory Coast, Mali,
Niger, Senegal and Togo), the Central African Stock Exchange (led jointly by
Gabon, the Central African Republic, Chad, Congo-Brazzaville and Equatorial
Guinea), the Douala Stock Exchange and the Rwanda Stock Exchange are also the
way for businesses to get funding by issuing stocks and bonds. Unfortunately,
these financial markets have a very small number of listed companies, have
failed to persuade all the identified businesses to go public and are unable to
draw the attention of the international investment community. The probable
merger between the Central African Stock Exchange and the Douala Stock Exchange
will not make things any better. Economic fabric is mainly made up of very
small enterprises (VSEs) and small and medium-sized enterprises (SMEs) in the
majority of French-speaking countries in sub-Saharan Africa. Many of these
ventures are not eligible for listing.
The above-mentioned stock exchanges remain essential structures and
should coexist with crowdfunding organizations. Its development will depends on
a dense network of innovative, successful and highly dynamic SMEs, the
improvement of bancarization level, an active campaign to educate business
owners about the introduction to the stock exchange, the establishment of a
stock market culture, a high savings rate of private households, the existence
of online brokerage firms and an administrative and financial autonomy, free of
political interference. There is still a very long way to go before they reach
the same size as the major international financial centers.
Monday, January 17, 2011
Finding a Venture Capital Firm that suits your needs
If you look at where entrepreneurs come from then you will find that most wold previously been in permanent employment from where business ideas, business experience and eventually a business plan may come from. Yes of course graduate entrepreneurs are becoming more commonly found today with entrepreneurship as an career becoming more and more popular and business finance becoming more readily available.
As with many things that are worthwhile doing, the field of entrepreneurship is not smooth sailing.
You have to come up with a feasible business plan before embarking on looking for funding from to enable you convert the idea into action.
Having drawn your business plan, you should shortlist investors to approach for funding since getting access to a bank loan for your start-up may not be easy
This is advisable if you are devoid of savings to pump into the business idea and choose to rely on external sources to roll out the idea.
Selling business idea
But before you start selling your business idea, you need to decide whether you want to work on the notion and grow it into a big business venture or you want to sell the idea to a business entity.
Many prospective businesspeople are often undecided on the two choices and as a result end up losing their dream of entrepreneurship.
Others come up with feasible business plans to sell to potential employers in order to secure employment.
For instance, a young entrepreneur could developed a feasible business plan of an innovative mobile technology and sell the idea to mobile phone company in return for employment or partnership.
Ultimately, this leads to loss of entrepreneurship energy as the idea owner losses control once he is offered employment.
On the other hand, selling a business plan to a rival company in search of funds has left many budding entrepreneurs in regrets as they see their business plans copied without them getting any reward.
If you are convinced that you want to roll out your business plan and grow it into a big business venture, then the venture capital market would be your stop point.
Here, you can shop for investors interested in buying your business idea and grow it.
Competitive nature
Owing to the competitive nature of the venture capitalist market, it is essential for an entrepreneur to do proper research and identify the right investor before packaging the business plan for implementation.
Just like doing prior research on a potential employer helps guide a job seeker on where his services could be of value, proper research guides a budding entrepreneur on the choice of the right venture capitalist.
Sending applications arbitrarily in search of funding, without proper research, is a futile effort that can never yield any response let alone results.
This is analogous to a pilot making unsolicited job applications to manufacturing firms that have nothing to do with aviation.
However qualified the pilot could be, his applications can never sell to personnel managers of manufacturing firms.
To identify the right venture capitalist firm, you need to do proper research on the following;
First, research on the venture capitalist’s industry focus in relation to your line of business.
Most venture capitalists tend to focus on specific industries or sectors and exclude others.
Try to enlist only those firms that lay focus on the industry within which your business plan is anchor to stand a chance of being considered.
The second criterion is the geographical preference and proximity to the venture capitalist.
Try to limit yourself to venture capitalists that have preference for funding business plans from your continent, country or even province.
Venture capitalists often earmark their geographical areas of concentration.
If you don’t lie within their area of preference, your application may be in vain.
Late-stage investing
Third, you need to unravel their stage-of-development bias.
Do they provide seed capital or are they only interested in late-stage investing?
If you are a start-up, its appropriate to single out venture capitalists that provide seed capital.
Fourth, what amount of capital do you need for your business plan and what is the range of capital investment of the venture capitalist?
Most of the investors have set low limits of the size of investments that they can consider sponsoring.
For instance, a firm may state that they only fund business plans that require a capital size of between R1 million to R100 million.
If your project lies outside this range, it is advisable not to approach them.
Revenue potential
You must resist any temptation to inflate the amount of capital that you require to match their capital range as you would encounter some difficulty later when you are called upon to demonstrate the feasibility of the project and its revenue potential.
Upon settling on a selected number of targeted venture capitalist firms, try to do a background check on the type of investments that the firm has made.
This can help you identify whether your business plan could be a duplication or slightly similar to an investment the targeted venture capitalist firm has explored.
Once prepared, you can now approach your targeted venture capital firms or go to a investors network event where you can start meeting business angels and venture capital partners.
As with many things that are worthwhile doing, the field of entrepreneurship is not smooth sailing.
You have to come up with a feasible business plan before embarking on looking for funding from to enable you convert the idea into action.
Having drawn your business plan, you should shortlist investors to approach for funding since getting access to a bank loan for your start-up may not be easy
This is advisable if you are devoid of savings to pump into the business idea and choose to rely on external sources to roll out the idea.
Selling business idea
But before you start selling your business idea, you need to decide whether you want to work on the notion and grow it into a big business venture or you want to sell the idea to a business entity.
Many prospective businesspeople are often undecided on the two choices and as a result end up losing their dream of entrepreneurship.
Others come up with feasible business plans to sell to potential employers in order to secure employment.
For instance, a young entrepreneur could developed a feasible business plan of an innovative mobile technology and sell the idea to mobile phone company in return for employment or partnership.
Ultimately, this leads to loss of entrepreneurship energy as the idea owner losses control once he is offered employment.
On the other hand, selling a business plan to a rival company in search of funds has left many budding entrepreneurs in regrets as they see their business plans copied without them getting any reward.
If you are convinced that you want to roll out your business plan and grow it into a big business venture, then the venture capital market would be your stop point.
Here, you can shop for investors interested in buying your business idea and grow it.
Competitive nature
Owing to the competitive nature of the venture capitalist market, it is essential for an entrepreneur to do proper research and identify the right investor before packaging the business plan for implementation.
Just like doing prior research on a potential employer helps guide a job seeker on where his services could be of value, proper research guides a budding entrepreneur on the choice of the right venture capitalist.
Sending applications arbitrarily in search of funding, without proper research, is a futile effort that can never yield any response let alone results.
This is analogous to a pilot making unsolicited job applications to manufacturing firms that have nothing to do with aviation.
However qualified the pilot could be, his applications can never sell to personnel managers of manufacturing firms.
To identify the right venture capitalist firm, you need to do proper research on the following;
First, research on the venture capitalist’s industry focus in relation to your line of business.
Most venture capitalists tend to focus on specific industries or sectors and exclude others.
Try to enlist only those firms that lay focus on the industry within which your business plan is anchor to stand a chance of being considered.
The second criterion is the geographical preference and proximity to the venture capitalist.
Try to limit yourself to venture capitalists that have preference for funding business plans from your continent, country or even province.
Venture capitalists often earmark their geographical areas of concentration.
If you don’t lie within their area of preference, your application may be in vain.
Late-stage investing
Third, you need to unravel their stage-of-development bias.
Do they provide seed capital or are they only interested in late-stage investing?
If you are a start-up, its appropriate to single out venture capitalists that provide seed capital.
Fourth, what amount of capital do you need for your business plan and what is the range of capital investment of the venture capitalist?
Most of the investors have set low limits of the size of investments that they can consider sponsoring.
For instance, a firm may state that they only fund business plans that require a capital size of between R1 million to R100 million.
If your project lies outside this range, it is advisable not to approach them.
Revenue potential
You must resist any temptation to inflate the amount of capital that you require to match their capital range as you would encounter some difficulty later when you are called upon to demonstrate the feasibility of the project and its revenue potential.
Upon settling on a selected number of targeted venture capitalist firms, try to do a background check on the type of investments that the firm has made.
This can help you identify whether your business plan could be a duplication or slightly similar to an investment the targeted venture capitalist firm has explored.
Once prepared, you can now approach your targeted venture capital firms or go to a investors network event where you can start meeting business angels and venture capital partners.
Saturday, December 4, 2010
What Venture Capital investors look for in investment opportunities
With banks increasingly risk averse especially when it comes to financing the business plans of entrepreneurs and small firms, both individuals and businesses alike are turning to business angels and venture capital firms to provide the business finance for their new or growing businesses. But of course these funding options with all its benefits of both finance and experience being pumped into the business may not always be easy to find and you need to be sure that you are an attractive option for them to consider.
In a recent article on his blog on , Brett Commaille analysed why Venture capitalists and entrepreneurs often don’t see eye-to-eye, and in South Africa in particular, there seems to be a very real gap in meeting the needs and expectations of both parties.
While we know the path of the entrepreneur can be a frightfully fun but rocky one, at some stage venture capital becomes a real option to consider, and when you get to that stage, make sure you know exactly what we are looking for.
As funders, we really look for four basic things and your pitch must answer the following:
1. What is the burning need you are taking away? Is it a widespread problem and thus a big market?
2. What is your solution or product? What are the competing solutions, your differentiators and the barriers to entry for a new competitor?
3. How does it make money? You need to know this upfront, what is your realistic plan to monetise?
While you present these 3 points, we are evaluating the 4th aspect which ties all 3 together and is the key to the success or failure of the proposed business:
4. The entrepreneur. Do you have a realistic actionable plan, and who is the team that will assist you to implement it?
What you need to do to greatly improve your chances of success:
Get an introduction – a recommendation from a businessman the funder knows gets the needed attention and improves your chances of making it through the first round of discussions.
Check the funder’s criteria (usually on their website) – make sure your are pitching something that the funder is looking for.
Make sure your demo works - getting this wrong wastes time and puts you on the back foot.
Talk of your past successes – especially how you made money for your previous shareholders.
Keep to a few slides - there will be questions and interruptions; you need to get your concept across in minimal slides.
Have an actionable business plan.
Be real – be honest and straightforward.
Identify the risks – don’t ignore or brush aside the risks; clearly identify each major risk and how you plan to deal with them.
Know your industry metrics.
Focus – don’t try to sell a hundred solutions, what is your core solution/product?
Avoid these common pitfalls
“These projections are conservative”.
This statement is meaningless – projections are always estimates. Rather give specific steps of how you wish to achieve specific targets.
“A ‘Famous Expert/Big Consultancy’ says the market will be worth $50bn in 2 years”.
Also a meaningless statement.
“All we have to do is get 2% of the market”.
Rather show specific steps to reach specific target customers.
“No one else is doing what we are doing”.
This is a problem if it is true (there may be no market) and a problem if it isn’t (you are demonstrating naivety with regard to defining competition)
“The giant is too big or slow to be a threat”.
Never write-off the existing dominant player.
“It will take them years to copy”.
Once you’ve proved it can be done, copying it is far easier than you think.
“Several VC firms are interested”.
Markets are too small to try this ploy. Negotiate honestly.
Never take advice without testing it.
Never argue – it’s pointless.
Avoid jargon – you risk losing your audience.
Finally, remember the following:
While a strong business model is essential
The key element is you
Be passionate and enthusiastic, and make us believe you can deliver on your plan
Wednesday, September 15, 2010
New Private Equity Initiative for SMEs
Great news for SMEs looking for start-up or growth finance is that another new initiative, this time through private equity firm Trinitas is injecting further finance into promising business plans. The company has raised R430m to invest in high cash-generating businesses and wants to increase this to as much as R1bn in the next 12 months.
Executive director Andrew Hall said yesterday Trinitas had been raising funds for the past 18 months, in one of the "toughest ever environments" because of the global crisis.
It had found investors who were convinced there was value in the company's business model, which is focused on mid- capitalised companies.
Trinitas Private Equity is being run by private equity experts John Stipinovich, Soteris Theorides and Mr Hall, who were also shareholders in the fund. Other shareholders are Sasfin and the black women's empowerment group Peotona, which has a 25% stake.
At its first closing in March, Trinitas Private Equity had raised R430m from five local investors from sectors such as banking and pension funds.
"We are happy with the level of interest by investors and ideally we want to raise more money and the fund is open for another 12 months to raise between R750m and R1bn in total, including the R430m we have raised," Mr Hall said yesterday.
Trinitas would focus on companies with enterprise values of between R150m and R1bn, because it believed companies in this segment had greater opportunity to create value for investors, including achieving organic growth in their sectors.
Mr Hall said the fund would invest from R50m to R150m over three to seven years in virtually any sector as long as it made business sense, particularly from a cash generation perspective. But mining was excluded because of its highly cyclical nature.
It had already invested R50m in a personal care and cosmetics manufacturer, Le Sel Research, a company based in Midrand and which makes products for customers such as Woolworths, Unilever and Aspen .
There were opportunities to invest, particularly in companies where management wanted to buy out the owners, or those in which the owners wanted additional capital and did not mind their shareholding being diluted.
Mr Hall said the recession had exposed small and medium-size companies who had overborrowed or expanded without any strategic intent, adding capacity which became idle overnight as demand collapsed. " Even when things are going well, it is better to keep the business lean," he said.
Source: Business Day
Wednesday, December 2, 2009
Venture Capital Focus on Growing Firms Says Shuttleworth
'Venture capital is better spend on existing and growing firms' This is the opinion of South African venture capital company HBD, which is still strongly associated with information-technology entrepreneur Mark Shuttleworth. The organisation expects to have disbursed some R100-million by year-end as part of its second fund, launched in late 2006.
CEO Julia Long tells Engineer-ing News that it is currently interrogating several potential investment opportunities, mostly in high-technology companies, but not necessarily information-technology enterprises.
Its so-called ‘HBD Fund2’ will run for two years, with Shuttle-worth having made some R150-million available to the initiative. However, Long says it is possible that more than R150-million could be disbursed over the period, citing a possible investment figure of R200-million.
Unlike the initial HDB fund, or ‘Fund1’, which focused on pure start-up-type enterprises, the current facility is seeking to finance more “mature” businesses that already have products, services and customers.
Long says the idea is to fill a gap in the South African capital market by offering equity funding to enterprises that are keen to either accelerate domestic growth or embark on an internationalisation endeavour.
Given this greater level of maturity, the size of the investment tranches has also been raised to between R10-million and R25-million – Fund1’s limit was set closer to R10-million. “By contrast, the companies we financed between 2000 and 2005, when Mark set aside R70-million for venture capital, were generally at a far less developed stage, some even at the concept stage,” Long explains.
She argues that there is still a desperate need for ‘angel investors’ to support start-ups, but that, following a broad-ranging analysis of the South African environment, HBD (short for ‘Here Be Dragons’) decided there was greater opportunity and less risk slightly further up the value chain.
She says the fund is open to just about any sector, excluding direct investments into real estate and agriculture, and hints to the fact that HBD is in the final stages of a due diligence involving an investment into a leisure-and-entertainment enterprise that offers a “unique” restaurant experience. It is also interrogating an equity position in a logistics enterprise.
To date, though, capital from Fund2 has been deployed in only two instances: an investment into EDH, which develops products and services for the sport, defense and industrial- inspection markets, including a radar-based solution used by broadcasters to track and display shots made by golfers during tournaments; and an investment into a company called incuBeta, which is an Internet search-engine marketing business, with a turnover of R50-million a year.
Long says its basic criterion remains that the companies be established and domiciled in South Africa.
She anticipates that HDB will remain invested in the companies for a period of about five years, and says its partners accept upfront that HDB will be seeking to make a profitable exit at some point. These exits can take various forms, from selling the business to similarly-styled entities, through to an initial public offering, most probably through a listing on the JSE’s small- company board, AltX.
The company has already exited from some of its initial investments made during the roll-out of Fund1, but Long admits that most of these have been conducted at a loss.
“We are acutely aware of the risks involved and don’t take them lightly. But our assessment is that, if we invest in ten companies and spend R100-million in the process, just one might turn out to be core. But that core investment will offer a return that more than covers the upfront investment with a healthy return, with the balance of the disposals offering a bonus over and above that return,” she concludes.
This may be a typical move by venture capital funds in the current economic climate trying to limit their risks and increase returns from businesses already proven to be successes in the market. Despite the importance of business finance being available to this market segment it should not be forgotten that with many banks trying to do the same the investors and banks in South Africa should not forget the army of entrepreneurs hoping to bring their own ideas to the market. Both Shuttleworth and the growing firms his company now invest in was at some stage a start-up and was it not for someone investing in these businesses at early stage they to may not have been in the position they are in today.
CEO Julia Long tells Engineer-ing News that it is currently interrogating several potential investment opportunities, mostly in high-technology companies, but not necessarily information-technology enterprises.
Its so-called ‘HBD Fund2’ will run for two years, with Shuttle-worth having made some R150-million available to the initiative. However, Long says it is possible that more than R150-million could be disbursed over the period, citing a possible investment figure of R200-million.
Unlike the initial HDB fund, or ‘Fund1’, which focused on pure start-up-type enterprises, the current facility is seeking to finance more “mature” businesses that already have products, services and customers.
Long says the idea is to fill a gap in the South African capital market by offering equity funding to enterprises that are keen to either accelerate domestic growth or embark on an internationalisation endeavour.
Given this greater level of maturity, the size of the investment tranches has also been raised to between R10-million and R25-million – Fund1’s limit was set closer to R10-million. “By contrast, the companies we financed between 2000 and 2005, when Mark set aside R70-million for venture capital, were generally at a far less developed stage, some even at the concept stage,” Long explains.
She argues that there is still a desperate need for ‘angel investors’ to support start-ups, but that, following a broad-ranging analysis of the South African environment, HBD (short for ‘Here Be Dragons’) decided there was greater opportunity and less risk slightly further up the value chain.
She says the fund is open to just about any sector, excluding direct investments into real estate and agriculture, and hints to the fact that HBD is in the final stages of a due diligence involving an investment into a leisure-and-entertainment enterprise that offers a “unique” restaurant experience. It is also interrogating an equity position in a logistics enterprise.
To date, though, capital from Fund2 has been deployed in only two instances: an investment into EDH, which develops products and services for the sport, defense and industrial- inspection markets, including a radar-based solution used by broadcasters to track and display shots made by golfers during tournaments; and an investment into a company called incuBeta, which is an Internet search-engine marketing business, with a turnover of R50-million a year.
Long says its basic criterion remains that the companies be established and domiciled in South Africa.
She anticipates that HDB will remain invested in the companies for a period of about five years, and says its partners accept upfront that HDB will be seeking to make a profitable exit at some point. These exits can take various forms, from selling the business to similarly-styled entities, through to an initial public offering, most probably through a listing on the JSE’s small- company board, AltX.
The company has already exited from some of its initial investments made during the roll-out of Fund1, but Long admits that most of these have been conducted at a loss.
“We are acutely aware of the risks involved and don’t take them lightly. But our assessment is that, if we invest in ten companies and spend R100-million in the process, just one might turn out to be core. But that core investment will offer a return that more than covers the upfront investment with a healthy return, with the balance of the disposals offering a bonus over and above that return,” she concludes.
This may be a typical move by venture capital funds in the current economic climate trying to limit their risks and increase returns from businesses already proven to be successes in the market. Despite the importance of business finance being available to this market segment it should not be forgotten that with many banks trying to do the same the investors and banks in South Africa should not forget the army of entrepreneurs hoping to bring their own ideas to the market. Both Shuttleworth and the growing firms his company now invest in was at some stage a start-up and was it not for someone investing in these businesses at early stage they to may not have been in the position they are in today.
Wednesday, October 21, 2009
Starting a business with Venture Capital Funds
Both Venture capitalists & Business Angels are really just investors in your business providing business finance together with experience, business links and support. This is because the objective is still the same. The business or individuals involved will normally be reviewing tons of business plans until one is found that have some synchronicity with the values and objectives of the funder.
Venture capitalists & Business Angels will normally find you through a combination of ways. As an entrepreneur looking for business funding you may be found either through joining a network of investors, sending your business plan to investors that you know of, or in some rare cases they may find you, either through a referral or recommendation from someone else.
Once contact has been made and a background check has been done, the management team will contact the entrepreneur so a meeting can be set to talk more about the idea that was envisioned by the person. If everything sounds good, then the funding will take place similar to how a student in school is able to get a grant in order to conduct the project.
The difference here is that the Venture capitalists & Business Angels will hold a certain percentage of shares in the business. This means a team of people will be working with the entrepreneur in seeing things through. This is done to protect the investment given by the company to ensure its success in the long term.
One of the industries being funded regularly by Venture capitalists & Business Angels is the information technology industry. Despite that, the chances of someone in another field who would like the same thing to happen is still possible because there are also companies out there looking for the next big break.
Everyone becomes a winner when VSs, business angels and the entrepreneur sign an agreement and turn that idea into a reality. This is because despite the risks involved in starting something new, the determination of the entrepreneur and the experience of the Venture capitalists & Business Angels can easily tackle the bumps on the road by steering clear from it.
Venture capital funding is when a startup business or an existing one needs funds from outside people to sustain or keep it growing. While there are banks that can help do this, it is easier to deal with private individuals since the interest rates are not that high and these supporters become strategic partners.
So where do you go for venture capital or business finance? Depending on where you find yourself, most countries today will have venture capital associations or networks where business investors and entrepreneurs are introduced and do business. Do a google search for business finance, venture capital or angel finance in your country and you are likely to be taking the first step to gain funding for your new business.
Venture capitalists & Business Angels will normally find you through a combination of ways. As an entrepreneur looking for business funding you may be found either through joining a network of investors, sending your business plan to investors that you know of, or in some rare cases they may find you, either through a referral or recommendation from someone else.
Once contact has been made and a background check has been done, the management team will contact the entrepreneur so a meeting can be set to talk more about the idea that was envisioned by the person. If everything sounds good, then the funding will take place similar to how a student in school is able to get a grant in order to conduct the project.
The difference here is that the Venture capitalists & Business Angels will hold a certain percentage of shares in the business. This means a team of people will be working with the entrepreneur in seeing things through. This is done to protect the investment given by the company to ensure its success in the long term.
One of the industries being funded regularly by Venture capitalists & Business Angels is the information technology industry. Despite that, the chances of someone in another field who would like the same thing to happen is still possible because there are also companies out there looking for the next big break.
Everyone becomes a winner when VSs, business angels and the entrepreneur sign an agreement and turn that idea into a reality. This is because despite the risks involved in starting something new, the determination of the entrepreneur and the experience of the Venture capitalists & Business Angels can easily tackle the bumps on the road by steering clear from it.
Venture capital funding is when a startup business or an existing one needs funds from outside people to sustain or keep it growing. While there are banks that can help do this, it is easier to deal with private individuals since the interest rates are not that high and these supporters become strategic partners.
So where do you go for venture capital or business finance? Depending on where you find yourself, most countries today will have venture capital associations or networks where business investors and entrepreneurs are introduced and do business. Do a google search for business finance, venture capital or angel finance in your country and you are likely to be taking the first step to gain funding for your new business.
Tuesday, June 30, 2009
Business Funding Deals for July 09
In our regular monthly blog on business funding activity around the globe, this month again we saw some interesting activity some of which are listed below.
Grou.ps, a do-it-yourself social networking start-up, has landed an additional $1 million in its first round of financing, led by Golden Horn Ventures.
Google has invested an additional $2.6 million in 23andMe reports the New York Times. The personal genetics company co-founded by Anne Wojcicki, the wife of Sergey Brin, a Google co-founder. The investment, which Google disclosed in a regulatory filing on Thursday, brings Google’s total investment in the company to $6.5 million.
The man who popularized the Web browser has started a venture capital fund to back the next generation of new technologies.
Marc Andreessen (above), a founder of Netscape, announced Monday that he and Ben Horowitz, a longtime business associate, had raised $300 million that they intended to invest in technology companies, Claire Cain Miller of The New York Times reported. The venture capital firm, Andreessen Horowitz, will risk small sums, some as small as $50,000, on new ideas.
The The New York Times and VentureBeat reported that Bling Nation, which allows users to pay for goods in stores via their mobile phones, has landed $8 million in financing, VentureBeat. Investors include Lightspeed Venture Partners, Meck and Camp Ventures
Grou.ps, a do-it-yourself social networking start-up, has landed an additional $1 million in its first round of financing, led by Golden Horn Ventures.Google has invested an additional $2.6 million in 23andMe reports the New York Times. The personal genetics company co-founded by Anne Wojcicki, the wife of Sergey Brin, a Google co-founder. The investment, which Google disclosed in a regulatory filing on Thursday, brings Google’s total investment in the company to $6.5 million.
The man who popularized the Web browser has started a venture capital fund to back the next generation of new technologies.
Marc Andreessen (above), a founder of Netscape, announced Monday that he and Ben Horowitz, a longtime business associate, had raised $300 million that they intended to invest in technology companies, Claire Cain Miller of The New York Times reported. The venture capital firm, Andreessen Horowitz, will risk small sums, some as small as $50,000, on new ideas.
The The New York Times and VentureBeat reported that Bling Nation, which allows users to pay for goods in stores via their mobile phones, has landed $8 million in financing, VentureBeat. Investors include Lightspeed Venture Partners, Meck and Camp Ventures
Business funding: Interesting Deals for June 09
June saw some great business funding activity around the globe. See below for some of the more interesting deals and let us know if we're leaving anything of note out.
PaidContent.org reported that Cloudera, an data storage and management start-up, has attracted $6 million in a second round of financing led by Greylock Partners. A previous backer, Accel Partners, also ponied up for the round, which brings Cloudera’s total financing raised to date to $11 million.
VentureBeat Reported that MyBuys, which helps e-tailers make personalized recommendations to customers, said it raised $7 million in second round financing round from Lightspeed Venture Partners and Palomar Ventures. Both firms participated in the company’s previous round in 2007. In a press release, MyBuys said it planned to use the new money to invest in products, client services and market expansion.
Topsy.com, the Twitter-focused search engine that has nabbed a total $15 million in financing to date, was introduced last week says VentureBeat. Investors in the start-up, whose search functions operate Google’s for Twitter accounts, include Blue Run Ventures, Ignition Partners and Founders Fund.
The chief of a soon-to-be-independent AOL is expected to create a unit called AOL Ventures, which will house some of the start-ups AOL recently acquired and seek new venture-capital investment for them, according to All Things Digital.
Paidcontent.org reported that Seatwave, the secondary ticketing Web site, is catching up with its rival Viagogo in terms of fund-raising, announcing that it has received another $17 million from its venture capital backers: Atlas, Mangrove and Fidelity, and a newcomer, Accel.
PaidContent.org reported that Cloudera, an data storage and management start-up, has attracted $6 million in a second round of financing led by Greylock Partners. A previous backer, Accel Partners, also ponied up for the round, which brings Cloudera’s total financing raised to date to $11 million.
VentureBeat Reported that MyBuys, which helps e-tailers make personalized recommendations to customers, said it raised $7 million in second round financing round from Lightspeed Venture Partners and Palomar Ventures. Both firms participated in the company’s previous round in 2007. In a press release, MyBuys said it planned to use the new money to invest in products, client services and market expansion.
Topsy.com, the Twitter-focused search engine that has nabbed a total $15 million in financing to date, was introduced last week says VentureBeat. Investors in the start-up, whose search functions operate Google’s for Twitter accounts, include Blue Run Ventures, Ignition Partners and Founders Fund.
The chief of a soon-to-be-independent AOL is expected to create a unit called AOL Ventures, which will house some of the start-ups AOL recently acquired and seek new venture-capital investment for them, according to All Things Digital.
Paidcontent.org reported that Seatwave, the secondary ticketing Web site, is catching up with its rival Viagogo in terms of fund-raising, announcing that it has received another $17 million from its venture capital backers: Atlas, Mangrove and Fidelity, and a newcomer, Accel.
Saturday, May 30, 2009
Business Finance: Deals for May 09
Some of the interesting venture funding deals and almost deals for May included the following:
Facebook, the social networking site, has held meetings with a bevy of private equity firms to explore raising another round of financing, The New York Post reported. Facebook held “valuation discussions” with Providence Equity Partners, General Atlantic, Bain Capital and Kohlberg Kravis Roberts, among others.
Associated Content, an online publishing start-up, has rounded up $6 million in funding, one month after it named a new chief chief executive, former CBS Interactive executive Patrick Keane, PaidContent.org reported. The latest round comes from existing investors including SoftBank Capital, Canaan Partners and AOL chief executive Tim Armstrong, the publication said. The additional cash brings the company’s fund-raising total to $21 million.
Marin Software, a provider of search marketing technology, said it raised $13 million in a third round of funding led by DAG Ventures.
EveryZing, a publisher-based search engine, has nabbed $8.25 million in a third round of financing. NBC Universal’s Peacock Equity provided $3 million of the total, while existing investors Fairhaven Capital, Accel Partners, General Catalyst Partners and BBN Technologies also participated.
Apparently Apple, with $29 billion in cash burning a hole in its pocket, was mulling a deal to buy Twitter for about $700 million. Putting aside the will-they-won’t-they chatter started by a report from Valleywag, PaidContent.org trains its sights on the price tag.
Slacker, a maker of portable musical devices, has taken in $9.6 million of a $10.2 million round, PaidContent.org reported, citing a regulatory filing released Thursday. The financing came from nine undisclosed investors, the publication said. Previous backers of Slacker include Centennial Ventures, Rho Ventures, and Austin Ventures. The new capital brings Slacker’s total funds raised to $68.7 million, PaidContent said.
Facebook, the social networking site, has held meetings with a bevy of private equity firms to explore raising another round of financing, The New York Post reported. Facebook held “valuation discussions” with Providence Equity Partners, General Atlantic, Bain Capital and Kohlberg Kravis Roberts, among others.Associated Content, an online publishing start-up, has rounded up $6 million in funding, one month after it named a new chief chief executive, former CBS Interactive executive Patrick Keane, PaidContent.org reported. The latest round comes from existing investors including SoftBank Capital, Canaan Partners and AOL chief executive Tim Armstrong, the publication said. The additional cash brings the company’s fund-raising total to $21 million.
Marin Software, a provider of search marketing technology, said it raised $13 million in a third round of funding led by DAG Ventures.
EveryZing, a publisher-based search engine, has nabbed $8.25 million in a third round of financing. NBC Universal’s Peacock Equity provided $3 million of the total, while existing investors Fairhaven Capital, Accel Partners, General Catalyst Partners and BBN Technologies also participated.
Apparently Apple, with $29 billion in cash burning a hole in its pocket, was mulling a deal to buy Twitter for about $700 million. Putting aside the will-they-won’t-they chatter started by a report from Valleywag, PaidContent.org trains its sights on the price tag.
Slacker, a maker of portable musical devices, has taken in $9.6 million of a $10.2 million round, PaidContent.org reported, citing a regulatory filing released Thursday. The financing came from nine undisclosed investors, the publication said. Previous backers of Slacker include Centennial Ventures, Rho Ventures, and Austin Ventures. The new capital brings Slacker’s total funds raised to $68.7 million, PaidContent said.
Thursday, April 30, 2009
Venture funding: some deals for April
There were a few interesting business funding deals and almost deals in April. Here are a few:
HyTrust, a virtualization start-up, launched its flagship product Monday with $5 million from its backers, VentureBeat reported. Trident Capital led the round, which included participation from Epic Ventures. HyTrust’s launch partners include VMWare, Symantec, Cisco and Citrix, the publication said. The start-up aims to enable the broader adoption of virtualization software by companies, by cutting down on security risk and aiding compliance.
Teradici, a Canadian start-up that is developing chips to deliver a PC-like experience over a network, said it completed a $17 million Series C round of venture funding. The investors included the venture arm of Telus, as well as Alloy Ventures, GrowthWorks Capital, Skypoint Capital, BDC Venture Capital and Alta Berkeley Venture Partners, Teradici said in a press release.
Facebook’s chief executive, Mark Zuckerberg, after a board-level conversation, has declined a funding offer that would value the social network firm at $4 billion, VentureBeat reported. VentureBeat, citing sources, said the company rejected the funding because it doesn’t need it.
Twitter is talking to big Internet companies about forming partnerships with them, but not looking to sell itself, a Twitter investor and board member, Fred Wilson, told the Bits blog.
Stoke, a mobile broadband start-up, has landed $15 million in a fourth round of financing, VentureBeat reported. New investor Net One Systems, Japan’s leading networking and systems integration provider, provided money as did previous investors, including Reliance Technology Ventures Limited, Sequoia Capital and Kleiner Perkins Caufield & Byers, VentureBeat said.
FreeWheel, an online video advertising broker, has nabbed $12 million in a third round of funding, VentureBeat reported. Funding for the start-up, founded by former DoubleClick executives, was provided by Foundation Capital and Battery Ventures.
HyTrust, a virtualization start-up, launched its flagship product Monday with $5 million from its backers, VentureBeat reported. Trident Capital led the round, which included participation from Epic Ventures. HyTrust’s launch partners include VMWare, Symantec, Cisco and Citrix, the publication said. The start-up aims to enable the broader adoption of virtualization software by companies, by cutting down on security risk and aiding compliance.
Teradici, a Canadian start-up that is developing chips to deliver a PC-like experience over a network, said it completed a $17 million Series C round of venture funding. The investors included the venture arm of Telus, as well as Alloy Ventures, GrowthWorks Capital, Skypoint Capital, BDC Venture Capital and Alta Berkeley Venture Partners, Teradici said in a press release.
Facebook’s chief executive, Mark Zuckerberg, after a board-level conversation, has declined a funding offer that would value the social network firm at $4 billion, VentureBeat reported. VentureBeat, citing sources, said the company rejected the funding because it doesn’t need it.
Twitter is talking to big Internet companies about forming partnerships with them, but not looking to sell itself, a Twitter investor and board member, Fred Wilson, told the Bits blog.
Stoke, a mobile broadband start-up, has landed $15 million in a fourth round of financing, VentureBeat reported. New investor Net One Systems, Japan’s leading networking and systems integration provider, provided money as did previous investors, including Reliance Technology Ventures Limited, Sequoia Capital and Kleiner Perkins Caufield & Byers, VentureBeat said.
FreeWheel, an online video advertising broker, has nabbed $12 million in a third round of funding, VentureBeat reported. Funding for the start-up, founded by former DoubleClick executives, was provided by Foundation Capital and Battery Ventures.
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