Venture Capitalists By William Cate Published March 1998 [http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinves tmentclubwelcome/]

They invest in less than 1% of the companies they review. Your odds of raising money at the race track or in Las Vegas are better than your odds of finding a venture capitalist. I don't believe that it's worth your time and money to seek their investment in your company.

Venture Capitalists aren't Fairy Godmothers. If you won't give up 60%-70% of your company for the venture capital investment, you'll never interest a Venture Capitalist in your company. For most business owners, a contract with a Venture Capitalist is a deal with the devil.

Let's assume that your company is a winner of the Venture Capital Lottery. You'll become a minority shareholder in your company. Your job will be to make your company a business success.

The Venture Capitalist's first goal is to recover their investment in your company. The VC expects to recover their risk capital within twelve months. They'll do it by appointing several financial sales people to top management positions. This VC management group will prepare your company for its IPO. They'll encourage accredited investors to buy half the VC stock in your company at double the price paid by the VC. Within a year, the VC has recovered their risk capital and still owns 30%-35% of your company. It takes between 25% and 40% of the VC's investment in your company to allow the VC to breakeven on their investment.

No one risks money to break even. The VC's goal is to do an Initial Public Offering and take your company public. Once your company starts to trade, they'll sell their 30%+ stock in your company. The good news is the IPO will raise more money for your company. The bad news is the IPO shares will further dilute your ownership of your company. As a public company, you'll probably now only own 10% to 15% of your company.

It costs money to do a successful IPO. You'll find that those VC Financial Managers will divert your advertising budget into general advertising that acquaints potential stock buyers with your company. It doesn't bother the VC that none of the potential stock buyers are buyers of your product or service. The axiom is that when investors recognize the name of your company, they'll buy your stock. It's the VC's stock, not the company's product or service that is being sold.

It costs money to do an IPO. That money comes from your company's cash flow. Until you receive the proceeds from the IPO, you won't have the money to expand your business. If the cash flow isn't adequate to pay the IPO costs, expect the VC to issue more stock and dilute your ownership further.

You can invest in a search to find a Venture Capitalist. I don't think your VC strategy is sound. You are betting against the odds that you'll find a VC. If you find a VC, you'll lose control of your company. When your company goes public, you could find that your insider group owns less than 15% of your company's stock. If you think that a VC strategy is a winning strategy, I wish you luck.

To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website: [http://home.earthlink.net/~beowulfinvestments/globalvillageinves tmentclubwelcome/]