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Venture Capital Process

Successful venture capital funding is a process of reducing perceived risk to the lowest possible level. The funding source has fiduciary responsibility to its investors. This requires a thorough " due diligence review " of all aspects of your business.

Venture capital sources will often require you to justify every assumption made for a projection five years into the future.

Your business plan must show the investment parameters requested, as well as a plan to liquidate the investor's position (the exit strategy ) at a later date by either a payback formula, initial public stock offering (IPO), or plans for a merger/buyout by a major company.

In the U.S., there are currently more than 6700 venture pools , private firms, SBIC's and corporate investors, with over $200 Billion under management. With the globalization of the economy, there is easily five times that much venture capital available from worldwide sources.

Even so, more than 80% of all start up companies are funded through informal sources such as friends, associates, and private "Angel" investors .

Seven Levels of Research and Planning for Every Startup:

  1. Feasibility studies to determine whether a given venture should be attempted.

  2. The preparation of the business plan for the first round, and subsequent rounds of investment and operations.

  3. Determining optimum debt and equity ratios , and developing a financial plan.

  4. The development of an operational plan to get the project up and running.

  5. Development of prospective funding sources for both debt and equity.

  6. Preparation of project evaluations for both pre- and post-investment analysis.

  7. Planning investor and owner exit strategies through mergers , acquisitions, IPO's, LBO's, or ESOP's.

Venture Capital Stages

Early Stage Financing: $25,000- $250,000

Seed Capital : Primarily for product development and market research.

Start up Capital : Company has complete business plan, initial marketing begins.

Company is ready for business , but no commercial sales yet.

Expansion Financing: $500,000 - $5,000,000

First Stage : Funds for full scale manufacturing and sales.

Second Stage : Essential working capital for growing receivables, inventories, and payables. Company may not yet be profitable .

Third Stage (Also known as "Mezzanine Financing): Funds for major expansion, new products. Company near break-even .

Fourth Stage (Known as " Bridge Financing" ): Financing for a company expected to go public in the next six months. Repaid with proceeds of the IPO, and used to restructure previous equity positions.

Acquisition/Buyout Financing: $3,000,000 - $20,000,000

Acquisition : Funds provided to finance the acquisition of another company. Also high interest "Junk" Bonds may be used, or substantial debt from banks.

Leveraged Buyout (LBO): Funds provided to enable a management group to acquire a product line or business from a public or private company. Revitalized management may have as little as 1% of their own money invested.

To Learn More about you can acquire a business with unique funding techniques and understand the financial techniques used by the pros, see our special reports.

"Our goal is to provide you the best funding tools available and to get your project funded quickly."
Bill McCready, CEO
Venture Planning Associates,

"Out of the hundreds of sites offering business plan products and services, your VenturePlan site is among the best, if not the best. "
Mike Rischard CPA, President, Agilecor

"When we received first round funding ($5 million) the VC firm asked us to show them how our financial models were created. They wanted to use OUR TEMPLATE (which we developed from the 7 Venture Capital Reports) to help them evaluate alternative scenarios for their portfolio companies!" Michael .Lay, CFO, e-Commerce Internet Company

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