Venture Capital general question

Venture Capital general question

Commercial Real Estate Broker · Biloxi, MS · Member since 2011 · 50 posts · 4 votes

I opened up my own company around 2 years ago after becoming frustrated with partners not performing.  Now that I own and operate my own business I have become frustrated with the never ending costs associated with continuing to build the business.  It seems like growth equals expense and expense slows growth while adding stress in the process! 

I know stress is good to some extent, as it raises the fear of failure, but I am very confident in the business and am concerned that with my lack of capital I may miss some important opportunities in my market.  I started this company with nothing, and am interested in exploring the opportunity to advance the company more quickly while stabilizing it financially as it continues to grow. 

In a nutshell.....My car is running but I could use a few new parts to run faster and more efficiently.

I didn't draw a business plan, I drew a battle plan.  However, I was unable to include many of the operating resources I needed to make an all-out-attack.   This may have been a blessing because it gave me the focus to ensure we built a strong reputation amongst our clients. 

I know how investors think, mostly.  And would be most interested in using capital to build a multi-use building so that there would be an actual cash-producing asset as a majority part of the deal.   Which I could also build at cost since I am a GC, and I could manage as a PM.  It would serve as my base of business operations and would be built to function energy independently giving us immediate marketing benefits and operating cost savings.

How does venture capital work?  Will venture capitalists settle for a fair return, or will they be expecting to buy a percentage of my company's income into perpetuity?  Any insights are greatly appreciated.

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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
11y

A typical VC is in no way, shape or form interested in cash flow.  VCs are smart gamblers who make their money through large liquidity events -- companies going public, getting acquired, etc.  For the most part, a VC is going to make a lot of bets, with many of them returning little, some of them breaking even and then hopefully at least a small percentage returning many, many times the investment.  

Unless you provide an opportunity for the VC to receive an extraordinary return on investment, they aren't going to want to "dollar cost average" their portfolio with you.  This is why VCs tend to focus on certain industries -- like technology -- where startups are often valued at many, many times their income just based on hype and potential.

What you're looking for are private investors who are willing to invest for a low-risk, stable return.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    11y

    A typical VC is in no way, shape or form interested in cash flow.  VCs are smart gamblers who make their money through large liquidity events -- companies going public, getting acquired, etc.  For the most part, a VC is going to make a lot of bets, with many of them returning little, some of them breaking even and then hopefully at least a small percentage returning many, many times the investment.  

    Unless you provide an opportunity for the VC to receive an extraordinary return on investment, they aren't going to want to "dollar cost average" their portfolio with you.  This is why VCs tend to focus on certain industries -- like technology -- where startups are often valued at many, many times their income just based on hype and potential.

    What you're looking for are private investors who are willing to invest for a low-risk, stable return.

  • Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    11y

    Venture capital companies aren't looking for 10% or 20% returns.  They're looking for 10 baggers.  Invest $10 million and get back $100 million or more.

    What you're really talking about is doing some sort of private placement.  Maybe to one or two angel investors, or perhaps to a few dozen investors, each kicking in, say $25-50K.  This is "selling securities" and is highly regulated at both the state and federal level.  Its entirely possible to do this, but it is an expensive process.  There is some ability to advertise under the JOBS act, but you're then limited to only accredited investors.  If you want to allow non-accredited investors (google that term, its well defined by the SEC) you can only promote it to people you personally know.

    Any time you want to get a significant chunk of the cash needed for a venture, you are going to give away a similar chunk of the ownership (equity.)  You would be able to collect fees for managing the company, managing the property and perhaps as a GC.  But if you need 100% of the cash, you're unlikely to be able to keep, for example, 50% of the company.  But who knows.  Just depends on the deal and what you can convince investors to invest in.

  • Commercial Real Estate Broker · Biloxi, MS · Member since 2011 · 50 posts · 4 votes
    11y

    Thanks fellas,

    It seems to me like I should probably stick to the original plan of building this up myself. Aside from the 2 years I have in operating the business I spent years researching and creating my formula...On top of the on-the-job experience. I have no problem paying a fair ROI but to give away the company for any price doesn't make sense to me. I guess I'm over-invested in myself! I'm sure my wife would agree. :-)

    Chasing capital one job at a time has kept us floating this long.  Maybe I should take a look at grant opportunities? 

  • Minden, NV · Member since 2014 · 5 posts · 0 votes
    11y

    A good first step would be to find mentors such as entrepreneurs in your industry who have successfully raised capital in the past or others with the expertise and experience to guide you.  These folks, who most likely have been through fundraising processes, are a great jumping-off point for understanding the relevant investor universe and best fits for investment bankers in your space.  

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