Venture Capital
Not sure how many have considered using venture capital for their real estate investing. I found this article that gives you an idea of how to peruse this.
http://www.journalofaccountancy.com/Issues/2011/Jun/20113746.htm
For those that have used venture capital maybe you can share something about the experience, pitfalls, or other considerations.
Interesting thought, but as someone who's worked on a couple VC deals, I think the chances of someone actually obtaining VC funds are so slim that it wouldn't be worth the time to try.
VC firms see so many deals it is almost hard to grasp. I talked to one company (in the nanotech sector) that was more than a month behind due to the amount of submissions they receive.
In order to have any real chance of success, you have to use what I call the "shotgun" approach. That is to say you have to submit your deal to as many VC firms that operate in the space you are seeking funds for. No sense sending your real estate deal to a firm that only gets in bed with green energy projects right?
There's also no sense in approaching only a handful of firms and expecting any hope of funding. To me, if you can't approach at least 20 VC firms it really isn't worth the time to try, but that's just me. Personally, as a broker, I wouldn't spend the time on a VC deal if there were fewer than 50 firms I can submit a client's deal to, but that's just my preference.
In the case of one deal I worked on, we submitted the client's deal to over 60 relevant VC firms, and to my recollection, only 20 or so even responded, and some took a month or two to get back to us.
Point being here is the competition for VC money is probably the highest out of any type of financing out there. That being the case, I think there has to be better options for someone who is in need of funds.
Reason I say that is if you have the qualifications to actually obtain VC money you most likely can secure easier money through a JV, line of credit, angel, hard money, etc.
I am not sure what you mean by venture capital.... i hope to learn more about it.. Thanks Doug
#4 Off Topic Contributor
- Investor
- Round Rock, TX
Darryl's comments are correct in my experience.
I also agree with Darryls' assessment and Bryan's experience.
I have to add that VC typically are not interested in "small" deals. Many have a minimum funding request of over $10 million.
It is also very difficult to locate and submit requests to enough VC to get even one to express interest. After the VC expresses interest, then comes the pitch. Assuming the VC likes the pitch, the next step is "negotiating" the offer ... if the VC is even willing to negotiate.
Those seeking funding have to woner if approaching VC is their best avenue to funding. For reasonably small deal, finding a local angel investor may be a better use of time and effort.
My $0.02
Not personally done a VC deal, but worked for a startup that was VC funded. If you think hard money rates or even a money partner's cut are steep, you ain't seen nothing yet. VC's are looking for deals where, over a few years, they can see their money grow by 10X or more. 10X over three years amounts to about 25% annually, fully compounded.
VCs are looking for a way to get their money in and out. They want to see some exit plan that happens pretty quick. Usually that's an IPO or a sale of the company. If you get $5 million from a VC, they want to see how you're going to give them back $50 million in a few years.
They're probably know more about structuring the deal than you. They will put in different classes of stock or "preferences" that get them paid first. A 50/50 deal won't be 50/50 if you end up having to give up with $2 million after getting $5 million, or probably even if you have $10 million. Just like with a HML, they're going to want their money back along with as much of the expected returns as possible, even if you're left with nothing.
Its all about the numbers. If you do get a chance to pitch to one, you're pitch better be very succinct (as Darryl says) and focused on the numbers. A very simple story of how that $5 million turns into $50 million.