Venture Capital: What Every Company and Private Investor Should Invest In
VC is presume to be a risky investment ‑ with the proper team, it can
be risk free or risk reduced: a great idea and it includes tremendous
opportunities and tax benefits, all rolled into one!
Investments are either categorized, by the IRS, as passive or active.
Those who prefer passive include anyone who buys normal shares in any
stock market. Passive shares are not a negative, unsafe investment but
they are passive, since stock market investors hand their cash to their
favorite stock brokers and begin crossing their fingers and, ever so
often, take a look at the newspapers to see how their stock is faring.
For most of those passive investors, they want to see their stock at a
larger number than when they bought it. A few of those others hope that
their numbers have gone down.
Most such passive investments offer little or no leverage, tax
benefits or have protection against loss. Finally, they are usually
illiquidCone cannot get any part of their cash back for days or weeks.
A different investing approach seems like it carries a high risk and
is used only by very astute investors who had millions of dollars
available. Meaning, what was considered to be one of the riskiest
investments in existence is in fact, one of the safest! That investment
tool is VENTURE CAPITAL.
My suggestion, to protect your investment and get it as high as
feasible, includes not simply seeking out and interviewing the hundreds
of venture capital firms spread out across America, but instead, review
your needs and preferences with your attorney and CPA and invest locally
in your own community via its entrepreneurs.
Most venture capitalists choose to do two mechanical things; invest
millions of dollars into a project and by‑pass 95% of all business plans
that come to them for financing. While that may be an industrial norm,
it need not be.
As a budding venture capitalist, you can invest any amount that you
feel comfortable guiding; I say guiding because a venture capitalist
WALKs the entrepreneurs site at least daily during the first month of
operation and 2x that for the rest of the first year and as often as
both investor and entrepreneur feel is desirable for the rest of the
relationship. While some investors want strictly hands‑off
relationships, it is actually better for the investor to stay, to some
degree, hands on.
Let me elaborate;
Entrepreneurs are, by nature, independent beings. They have their own
vision [which should be different from others or why else are they
opening up their UNIQUE shop?] By opening, they bring energy, vision and
a matrix and hybrid of others skills and ideas. However, one of the
(temporary, hopefully) negative things they also bring to their shop is
singular focus; it must be MY way or no way and if I am not thinking
about it, either someone else needs to be or it is not important. The my
way or the highway is how entrepreneurs PRECLUDE themselves from
thinking like managers‑and managers guide the entire operation‑not just
the singular focus that the entrepreneur has. The manager needs to
consider how much credit to offer customers [if any], when to drop or
raise prices, when to hire and release, and a consider a myriad of other
things or processes so that the entrepreneur can keep his ‑her‑ eye on
the winning idea that intrigued the investor in the first place. As a
matter of fact, sometimes, what permits some entrepreneurs to succeed is
that they find their competition‑perhaps other entrepreneurs, who have
excessive laser beam focus and are forgetting one or more other critical
components of business. If the excessively focused entrepreneur is not
willing to look at [his/her] weaknesses, the competition surely will!
A good manager will ID these weaknesses, sit down with the
entrepreneur [so as not to usurp responsibilities] an arrange to plug
the gap in mis application of something. For this reason, it is
understood that a new and growing business needs both the innovative
vision of the entrepreneur And the wide‑view of the manager. These areas
of focus DO conflict, often., according to my peers, there is, at
least, a temporary solution. Prior to opening up the new office/store,
the entrepreneur states in his/her business plan, that when he hires his
first manager, he will also come to agreement on a mediator‑or
consultant or arbitrator. This ON CALL only person will be available to
listen to squabbles and offer an on the spot [if feasible] answer to the
problem and this answer, will, for x hours, days or weeks, be the way
things operate regarding that area of disagreement. This way, both the
visionary and the manager can continue operating the entire company and
the disturbance or disagreement can be the "monkey" or responsibility of
You can decide, with your advisors, what amount per business suits
your comfort level and how many investments you can make per annum. Some
retirees are now putting as little as $50,000 into a foundation or
other fund they create and issue checks in amounts as small as $2,000
or $5,000. Using this approach, the person with some investment dollars
gets to be directly involved in his/her fields of interest, working
hand‑in‑hand with all age entrepreneurs and entrepreneurial trainees.
This investment approach I am discussing is different from foundation
THIS approach is not a grant but an investment. It trades cash
investments for an equity stake in a new or expanding company and the
investor becomes, at least for a while, a P.T. employee of the firm!
[CEO, 2 owner or otherwise.] The entrepreneur‑INVESTOR works within the
company 'x' hours a week at those tasks previously agreed upon between
the investor and the business creator. The investor handles the cash,
for the security of the firm, and collects a percentage of the net
profit, again, on a cycle as previously agreed to [daily, weekly,
whatever]. The investor uses his CPA and attorney to both protect his
investment and to cut the immediate operating costs of the company
[paying both from the revenue of the new firm or from the future
profits, whatever was previously agreed upon]. By having the investor
work within the firm daily, the investment is protected as much as can
be, and ideas for improvement can be put to use immediately and waste
eliminated. Often times, it is advisable to seek out a retail business
consultant to use macro skills and evaluate the company on all
An investor can receive from 25% to over 3,000 percent return on his
money. Just what are the risks of investing in small, new [local to
A; The entrepreneur fibs about doing research and skewers the results [or does none at all.]
[solution; have a research analyst examine the quantity and
expansiveness of the surveys taken‑see how applicable the questions and
confirm the size of the sampling survey.]
B; The entrepreneur has no way of knowing that research elsewhere has
more engineering dollars than he does and just after he opens up and
begins to get purchase orders for his gizmo, a newer, fancier gizmo with
more advantages and benefits comes on the market. [solution; do not
open a business with only one "trick pony." Have another side show
available and have 2‑10 other cousins in the oven being roasted‑which
means, since inevitably whatever you create, it will be met with
competition soon. To keep a market advantage, one must out invent
oneself! Come out with the newer gizmo to your own gizmo faster than the
C; People can get bored with your "trick pony."
[Solution, discover different uses for your gizmo‑not related to its intended use!]
D; You need more customers trying what you have before others "jump on board."
[Solution: give away dozens to fraternities or other blabber mouths so as to create BUZZ.]
E; Your innovation is cyclical; winter ski gizmo, swimming gizmo, etc.
[Solution: take it to places that are experiencing the same weather
you were when you invented it. Non‑world travelers forget that when it
is summer in N. America, it is winter below the equator.]
F: Big competitors try to bad mouth your gizmo.
That is actually a good thing cause it means they are afraid of its market ability and they want you to walk away from it.
There are a dozen or two other things to deal with; that is why you
have a consultant, attorney and manager. Never get complacent.
While every business includes risks, these are reduced since the
company has the vision of the entrepreneur, the business savvy of the
investor, the breath vision of the business consultant, a retained
attorney and CPA. Usually, those 5 people can do the work of 10 and
again wind up cutting the expenses of the company, helping to assure a
profit to the firm. The U.S. has over 1,000,000 millionaires. If every
one of them financed 1 new business start‑up per month, unemployment in
the US would disappear within 24 months!