Capital Raising Services

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When Should a Company Start Raising Venture Capital?

Most entrepreneurs often feel that venture capital should be raised prior to or immediately at the onset of a business. However, this is not often the case. Venture capital, as discussed in previous articles, can be raised in several different stages. In order to finance your growing business, you can skip the steps regarding startup/seed capital and move directly into mezzanine capital. This is especially true if you business is operational, profitable, and has an extensive operating history.

 

When looking for venture capital it is often difficult to determine when and what type of capital is required. Again, the most advanced your business (and the more profitable) the easier it will be to secure an investment from a venture capital firm. In some instances, it may be appropriate to raise capital only when your business intends to undergo an aggressive expansion. This will not only ensure that you will have an easier time raising capital, but your business will also meet the growth criteria required by venture capitalists. However, this is not only the case. In regards to companies that have proprietary technology or a highly unique business model, it may be appropriate for you to being to raise venture capital prior to the onset of operations.

 

As has been a common theme throughout these articles, there is difficulty in obtaining private capital – and by having either an established business that is growing, proprietary technology, or a highly unique business plan – you will be in a much better position to acquire funding from private investment firms.

 

When determining when to raise capital, you may want to consult with your certified public accountant prior to entering this process. In our next article, we will discuss the general costs of raising capital.

 

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EMERGING TRENDS IN CAPITAL STRUCTURE DECISSIONS

INTRODUCTION: 

Indian firms are generally known of depending heavily on institutional borrowing for funding business needs. This might cause major impediments for such investments since lenders particularly, the institutional funding from expanding its operations to new risky ventures until their dues are settled.  Similarly, persistent use of high level of debt increases the fixed cost and in that process, return on equity suffers heavily.  It would be difficult to raise equity finance with such poor track record for many companies.

 In addition to these reasons, firms, which have allotted shares to institutional investors, face yet another constraint.  Institutional investors may also insist the firms to pay liberal dividends and require firms to approach the market for funding new investments. 

Hece, firms need to consider the long-term impact while borrowing capital from financial institutions or issuing equity to certain types of shareholders.  Since these capital Providers can effectively put a block on the freedom of firms to spend capital, capital structure assumes importance for strategies that require large scale funding for implementation.         

DETERMINANTS OF CAPITAL STRUCTURE

 Capital structure is the composition of various sources of long term finance to the total capital employed of the company. The two primary sources of finance are owned funds and borrowed funds. The characteristics of the firm influence debt-equity choice  and include parameters such as firm size relative to economy, profitability,  value of collateral assets, non-debt tax shield, , market value  to book value  ratio,  interest coverage ratio, price-earning ratio, bankruptcy cost and cash constraint. 

1.SIZE OF THE FIRM:

       Size represents the firm’s competence for financing and investment.  It is also argued that smaller firms would have less long-term debt because of shareholders-lenders conflict.  Firm size is also measured in terms of labor turnover. Firm size is also measured relative to economy.  It indicates the firm’s capacity in terms of finance garnered from the economy.  Larger the firm size in terms of the economy, more the chances of it being important within the industry.  The variable is measured as a ratio of total assets to gross domestic product.  Thus, an industry leader with ample avenues is more likely to go for debt financing.  This measure is also used in this study to bring out effects, which may be due to the firm size relative to the economy.

2. POFITABILITY:

    Profitability reflects the financial position of the firm with regard to its profit earning capacity.  It is measured as the ratio of PBDIT to total assets.

According to the interest tax shield hypothesis, firms with high profits would employ high debt to gain tax benefits.  Thus, higher the profitability, higher would be the firm’s capability to meet the debt obligations and hence debt becomes more affordable.  As the profit earning capacity level moves higher, the firm will employ higher retained earning and less debt, and it enjoys more freedom in choosing its financing options.

3. COLLATERAL ASSETS VALUE:

            It indicates the capacity of the firm to avoid or minimize asset-substitution problems.  Higher the value of collateral assets, easier it is to obtain funds from sources other than the capital market.  It is calculated as a ratio of next fixed assets to total assets .As the value of collateral assets increases, the motivation of a firm to go for non-traditional debt reduces.

4.NON DEBT TAX SHIELD:

  The non-debt tax shield is also an important explanatory variable in a capital structure model.  It refers to the benefits a firm can gain from options other than debt-interest that is the most prominent tax shield.  Non-debt tax shield could be depreciation or amortization, or any other tax-benefit expense other than debt interest.  A priori, the impact of non-debt-tax-shield on the demand for equity and retained earnings is not known.  That is, for a given portfolio of liabilities, if the demand for debt falls, equity and/or retained earnings must rise, ceteris paribus.  If at all possible, such a measure should encapsulate R&D and advertising expenditure as well as investments tax credits.  Due to lack of data, most of the studies have used depreciation deductions over total assets as a measure of non-debt tax shields.

5. MARKET VALUE TO BOOK VALUE RATIO:

  Investment opportunities represent a firm’s intangible value that does not have a collateral value.  The intangible value is likely to be lost if financial distress takes place.  The risk of under-valuation and resource diversion is quite high for firms with high intangible values; these arguments suggest a negative relationship between debt ratio and investment opportunities.  But the agency problem may be lower for short-term debt than long-term debt.  The financial statements do not reflect the future investment opportunities but the market value of shares reflects them. 

           Hence, market value to book value ratio is used as a proxy for the value of a firm’s future investment opportunities. It is measured as the ratio of sum of market capitalization of a firm, liquidation value of preferred stock and total debt to total assets. It follows that when the ratio is high, firms are less likely to go in for debt financing because of the potential under-investment problems.

6. INTERST COVERAGE RATIO:

 It denotes the capacity of the firm to meet fixed interest charges.  A larger ratio indicates that interest coverage is higher.  The variable is measured in terms of the ratio of EBDIT to interest.  The higher the ratio, the greater are the chances of the firm being able to go in for debt.

7.PRICE-EARNING RATIO:

            The future earnings potential can also be measured in terms of price-earnings ratio.  It reflects the financial performance of the firm in the capital market.  When the price-earnings ratio is high, firms may prefer to use equity sources for financing than debt sources of funds.

8. BANKRUPTCY COST:

It indicates the financial standing of a firm.  Higher the bankruptcy cost, higher is the risk taken by the firm.  It is measured in terms of the variance of the annual operating inco

9. CASH RESTRICTIONS:

    It highlights the financial position of a firm in terms of the cash availability.  Higher the cash constraint, lower is the chance of the firm being able to exercise financial flexibility.  Measured in terms of the ratio of dividend to total assets, it aids a firm in making a decision regarding debt issue, in which a firm with cash constraint may not be able to pay the interest charges and hence may not go for more debt.

  CONCLUSION:     

     From the observations made, it is found that, Capital structure is the piece of music of various sources of long term finance to the total capital employed of the company. The two primary sources of finance are owned funds and borrowed funds. Most of the companies in India are using only these funds for profitable decisions. While taking capital structure decision, care must be taken on the choice of the amount of fixed interest bearing securities and variable income bearing securities namely Debt or Equity is made after the comparison of the relative merits and demerits related to companies operations.

 

 

 

 

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Raising seed capital : Discover one thing that 70% of all investors want

After the crisis, a change occurred in the hedge fund industry. Investors became more doubtful about hedge fund abilities to make money. As a result, 70% of investors are asking more transparency from the managers, according to a SEI survey.

To raise your seed capital or to convince new investors, you need to be as clear as possible about your project or your fund. Explain your competitive advantage, your overall strategy, the fee structure, the legal structure, assets under management… The quality of these explanations will be a big factor in the prospect’s mind. Be prepared to answer question about valuation methodologies, risks, returns, ranking, human resources, management.

Having a good-looking power point presentation is almost indispensable. A picture is worth a thousand words. Sometimes, really good managers can’t express their ideas clearly. By preparing a presentation you make sure a lot of complex aspects of your hedge funds will be understood instantly.

Some investors will also call you a lot to know everything about you, your staff and your hedge fund.

In order to do that you will need marketing tools like a CRM (Customer relationship management) to stay in touch with you prospects. A growing numbers of investors need time to decide if they’re interested in what you have to offer. With a software like a CRM you can send them detailed reports on a regular basis. In those reports, you can talk about what changed recently, for example if you hired a new manager. You can also explain your management philosophy.

Investors will also do some research online. As a consequence, it’s really important to have an Internet presence. A website that explains your overall strategy can help prospects decide themselves quicker.

For a successful hedge fund marketing campaign you need to be as clear as possible about your fund and you need to build trust with your investors. It’s a lot easier to achieve that with powerful marketing tools.

How to Raise Venture Capital for Your Business

For a new business with little or no start up funds, the thought of how to raise venture capital can be daunting. It is not impossible, however. There is a multitude of venture capitalists and investors waiting to help you if you know what to do and where to look. There are several things an investor will look for in order to do business with you:

A Business Plan – this needs to be a detailed plan outlining your product or service, your market share, income and expense statements, organization charts, and mission statements. Are you going to have a physical presence, be completely online or a combination of both? You must have marketing strategies for each of these scenarios.

Experience and skills – an investor will want to know what you are bringing to the partnership. Have you run a business in the past? Do you have unique skills and talents? Don’t be afraid of appearing conceited; the more you list, the better, as long as you can back them up with proof.

Commitment – are you treating this as a hobby, or are you truly committed to succeeding and seeing a profit?

An Exit Strategy – do you have a strategy in place for your investor to exit your business? For the most part, investors and venture capitalists will want out of your business once it becomes successful, or they have received a return on their initial investment.

Depending on the nature of your business, and the amount of capital needed, venture capitalists will require all of the above in order to consider you investment worthy. Some investors only invest in high tech businesses, while others invest in areas where they themselves have expertise. The process of arranging capital can be long and rigorous. Most venture capitalists have strict criteria and guidelines when considering investments and will want a say in major business decisions.

Do your research to find the right type of investor for your business. It doesn’t matter what hemisphere you live in, there is an investor willing to help you, provided you have the criteria they are looking for.

In China High Potential and Quality Service Venture Capital

 
Venture capital is a type of private equity capital typically provided to immature, high-potential, growth companies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. Venture capital investments are generally made as cash in exchange for shares in the invested company. Venture capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms.

Dynasty Resources is your Gateway to business in China. Through partnerships with top companies, each specializing in a unique area of China business, Dynasty provides quality services that help you enter the most exciting market on earth. Dynasty’s venture capital and private equity partners specialize in China investments, everything from tech startups to joint ventures with State Owned Enterprises. But despite our best efforts and intentions and goals, that doesn’t mean each of us is able to figure out the why, where, who, when, and most frequently the what of how to get rich. Not all of us can drive every vehicle capable of shuttling them to success equally or as quickly as they might another vehicle. That’s why I wrote this article. Real estate investing is my passion. Real estate investing can build and keep wealth like nothing else. But I won’t claim it’s the best vehicle to build wealth easily. In fact, I’m not sure it is!

This article will help some of you see the types of actions and scenarios likely to take someone reading about how to get rich and propel them into a future full of success and sharing with others how to get rich— just by taking each of these vehicles for a mental test drive.

Venture capital is most attractive for new companies with limited operating history that are too small to raise capital in the public markets and are too immature to secure a bank loan or complete a debt offering. Dynasty matches you with experienced investors with a proven track and a common mission: to create entrepreneurial returns on capital by investing in and helping build companies that have scalable business opportunities in the global Chinese economy.

Dynasty’s China venture capital partners invest in many industries, including technology, real estate and energy efficiency, among others. Please call for a free consultation. Tens of billions dollars of Foreign Direct Investment are poured into China every year; investors are betting on China because they know it’s the most lucrative market in the world. Making the right investment, however, requires the guidance of professionals who understand the Chinese mindset and the local business climate.

 

 

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Raising Capital In A Down Economy

As a real estate investor looking for capital for deals it can be very challenging especially in a down economy such as the one that we find ourselves in. However, that doesn’t mean that it is going to be impossible to raise money for your real estate investing business. The key is to have the right approach and to be able to demonstrate what you have to offer for potential investors.
Many investors make the mistake of believing that no one is interested in investing in this current market. With the prices of real estate significantly below their value highs, the thought is that people are going to be hesitant to invest their money. Basing your business and investing strategies on generalizations is a good way to significantly hinder your growth.
While it is certainly true that SOME people are going to be hesitant to invest in this environment, others are very excited about the investment opportunities that are available. They are just looking for the right opportunity to take advantage of. Others would love to take advantage of alternative investing strategies, but simply don’t know what is available to them. You might be just the person that they can work with.
So how do you raise capital in a down economy? Let’s start with how NOT to raise capital. It is guaranteed that if you don’t ASK for the money that you need, you will never get the money that you need. One reason why investors don’t get the capital they are looking for is because they are afraid to ask. They assume that investors are not interested in investing with them and as such, they never take the time to find out. There is no harm in asking for money. The worst thing that can happen is the person says no. However, what if they say yes? Imagine how easier your investing efforts would be if you have cash at your disposal to invest?
Now that you know how not to raise capital let’s review some strategies that you can use to raise capital in a down economy.
One way that you can raise money in a down economy is to target high net worth individuals who may have been burned by other methods of investing. For example, there are a number of people who have a lot of money tied to the stock market. For instance, if you invested 0,000 in the S&P 500 index in January of 1999 and calculated how much money you would have by December of 2009, adjusted for inflation, you would only have ,480 after 10 years of investing. That is a terrible rate of return and there are a lot of people who are experiencing those types of returns, if not worse.
By targeting these people, they often make great candidates for private investor partners to provide the capital that you need for your real estate investing business. You could easily provide them with a better return on the first deal that they did with you then what they are likely getting in the stock market. The problem is, they simply don’t know about your program.
Another group that you can target is high income professionals, such as doctors, attorneys, certain types of accountants, executives and business owners. These are people that make a great income but need a place to invest that money. The places that they are likely investing that money (i.e. the stock market & their own personal residence) has likely lost money over the last several years.
Because of the returns that are available as a real estate investor, you can show them how they can partner up with you, get much better returns than what they are getting right now and even potentially make back some of the money they have lost. They are likely concerned about the economy right now because the assets that they are saving up for retirement and their children’s education have likely diminished significantly. Investing with you is a potential solution.

Where do you find the types of people that fall into these categories? It’s not like everyone walks around with a sign on their forehead that says “I have money to invest in real estate” or “I don’t have money to invest in real estate.” The key is to tap into your network and present your program to people that are already in your network. They may be the person you are looking for. They may not be the person themselves but they might be able to lead you to the right person. You won’t know until you present the program to them.
That means you should have an idea of exactly how much money you will need to raise. You can calculate this number based on how much money you know you will need in order to acquire the types of properties that you are looking to buy and to put in the work necessary to make the property profitable.
For example, let’s say you encounter a 3 bedroom 2 bathroom home for ,000. The property has about ,000 worth of work that it needs in order to get it back to market value. The market value in the area for these types of homes is 0,000. You would need to have at least ,000 cash in order to purchase this property. You will actually need a little more than that to cover holding costs, but let’s forget about that for now.
With the ,000 cash, you can buy the house all cash. You won’t have any mortgage on the property. You can invest the cash required to do the work to fix it up to market condition. You can then list the house at the market value, sell it and make a profit. The profit is what you will use to pay off your investor and any money that you have left over is profit for you. This is a great way to invest because you have other people putting up all the money, yet you are able to generate a profit. With ,000 profit, you think you could give your private investor partners a much better return than what they are getting in the stock market? Consider this, a 10% return on ,000 is only ,000 and if you are in and out of the deal in 6 months, that is actually the equivalent of a 20% annual return.
Once you know how much money you need, the next step is to find people that have this type of money available to invest. A person doesn’t have to be rich in order to have ,000 to invest. There are a lot of older middle class professionals that have multiple six figures in their retirement accounts to invest. Suppose you have a single person with no kids that takes an early withdrawal penalty to take out the ,000 from their 401K plan. They would have to pay approximately ,000 in taxes plus ,000 in a penalty, for a total of ,000. Let’s say you agree to give them half of your profit (which is a lot BTW), in this case ,000.
Within a 6 month time frame of investing with you, their return would be enough to cover all of the money that they had to pay in taxes, the early withdrawal penalty, plus an extra ,000 profit. The profit alone is a 5.5% return over a 6 month time frame, which is significantly greater than what their return would have likely been in a 401K plan over the last 10 years!
The best way to find these people is to start with people that you already know. Sit down with your family members as well as your friends and explain to them what you are doing. Create a nice presentation that highlights the key points to your program, such as how much money you need, what the money would be used for, how their investment would be secured by real estate, etc. Show them the type of returns that are possible and see if they are interested.
Will you have some friends and family members that won’t be interested? Of course you will. However, there is a good chance that you will have some that would be interested. The reason why is because your friends and family members, in most cases, trust you more than they trust a complete stranger. They are already giving their money over to a complete stranger in the form of these mutual funds that they are investing in. They are clearly not happy with their returns. With a property that they know is worth at least the amount of cash that they have, it will be tough for them to lose money.

Besides friends and family, there are a number of other contacts in your associate circle that you can approach regarding partnering up with you in your real estate investing business. A great group to consider is other investors that you work with. If you currently have investors that you flip properties to, maybe they might be interested in partnering with you on a deal.
Think about groups of associates that you have where they are likely to have money. For example, if you have gone to real estate seminars, personal development seminars and other types of retreats, this is a great group of people to approach. People that tend to invest in these types of events usually have disposable income; otherwise they wouldn’t be attending the event to begin with. Contacts that you meet while on vacation are another good group as well.
As you go through your contacts and identify people to approach, keep in mind that if the person turns out not to be interested, they could still potentially help you by referring you to their contacts. There are dozens, if not hundreds of people that they know that you don’t. One of those contacts could be the perfect partner for you.
One of the most important steps towards being able to have an investor decide to do business with you is providing documentation to make the potential private investor partner comfortable doing business with you. While there is no rule set in stone that says that you have to have completed a deal successfully, the fact is, private lenders are going to feel more comfortable dealing with investors who have done these types of transactions before. If you don’t have any money to do these types of deals yourself and you are having trouble with convincing a private lender to work with you, perhaps you may want to get a few deals under your belt by wholesaling the properties to other investors.
If you have deals that you have done before, it is a good idea to document some of these deals and highlight them when you are doing your presentation. Even if you didn’t use private lenders for the deals, you can provide examples of what a private lender could have made with you if you would have used one on the deal. This way they know that you have experience and a track record and they will feel more comfortable doing business with you.
Once you find a partner that is interested, the next step is to agree to the terms of the deal and create the necessary structure to protect both parties. One of the most common ways compensation is done is by negotiating an agreed upon return on the partner’s money after a set period of time. For example, you might agree to give the partner back their full investment, plus an additional 10% after 6 months. In the case of a 0,000 investment, you would give the partner 0,000 when you repay him or her.
To provide the best type of protection for both you and the partner, you should purchase the properties under some type of corporate entity. In addition, you should create a written document that outlines fully all of the terms and conditions of the partnership. Don’t leave anything to memory! Document everything so that if there is ever a question or misunderstanding you can refer to the documentation.
Also, keep in mind that there are legal ramifications to arranging these types of deals so a competent attorney should be consulted. The other reason why you will want to consult with an attorney is because you want to make sure that you are not in violation of any securities laws. Securities laws are very serious and violations can result in very stiff fines and penalties. You may also want to speak to a tax professional to fully understand the tax ramifications from such a relationship.

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