Friday, August 21, 2009

So Who are the People Who Can Potentially Invest in Your Company?

There are several interested parties who would like to see your venture succeed and can be categorized into four types:

The first line of investors:

This group typically includes your family, friends, American Express, Mastercard, Visa, oh and your Discover card.

The second line of investors:

Typically, this involves your suppliers (as creditors, they do finance your company) and especially if they are strategic suppliers who share your market interests. More often this group includes Angel Investors who are affluent individuals who organize themselves into Angel groups and can focus on anything from broad community-based investments to narrow geographical or sector-focused investments.

Angel Investors are similar to VCs in that they are as professional but because they invest their own funds (rather than manage the pooled assets of third-parties) and enter at earlier stages typically have a greater risk/reward appetite than a VC.

Another investor is Uncle Sam. The US government’s Small Business Administration (SBA) has the “New Markets Venture Capital” program which primarily focuses on economic development of low-income areas. Another program from Uncle Sam is the Small Business Investment Company (SBIC) program which helped fund companies such as Intel, Staples, Apple, AOL and Sun Microsystems to name a few. Unfortunately, this program was significantly curtailed in 2005.

The third line of investors:

The Venture Capitalists and Private Equity Investors. But who are these nameless benefactors? Anybody with a lot of money, except for your bank, that’s who. They include everybody from Former US Presidents and Vice Presidents (Bush Sr. and Gore, respectively) to university endowments and state agencies such as CalPERS.

Name brand companies such as Intel have their own PE/VC arms; Intel Capital invests in technology worldwide.

Heck, even Communist China is now in on the game via its China Investment Corporation (CIC), China’s sovereign wealth fund set up in 2007 to manage $200 billion of China’s $2 Trillion currency reserves, but already owns 9.9% of Morgan Stanley and also has an interest in Blackstone Group, one of the largest firms that specializes in Private Equity and R.E. investments which also happens to be publicly traded, who knew!!!

The fourth line of investors:

The public at large. Members of the general public become investors via an Initial Public Offering (IPO) where you can offload some equity in your growing company in exchange for some valuable consideration. This is where you and your equity partners can be expected to go your separate ways. But it does not necessarily have to end there as some partners may decide to stay on and cultivate strategic alliances for the venture in the market place.

Investors come in all shapes and sizes from mom and dad to China…

Happy funding,

EZ the VC

1 comment:

  1. Great work with the recent articles focusing on funding...informative and on the money.