Venture Capital Defined

Be careful with companies in formation - Wait For Earnings

Without Earnings, Nothing To Measure

Graham was suspicious of 'hot' or fast-growth stocks because their promise relies on the prediction of ever-increasing future earnings with little historical evidence that the company can consistently produce ever-rising future earnings.

He warned the growth stock investor to seek two things:

• Assurance that growth will continue
• Assurance that the investor isn't paying too high a price for future growth.

Peter Lynch warns investors to be especially careful with companies in formation.  "Wait for earnings," he cautions.

• Though Lynch has done very well with some initial public offerings in particular (he was an original investor in Federal Express, "I'd say three out of four have been long-term disappointments."

Venture capital operations

Many high-tech, bio-tech or other emerging technology companies operate more like venture capital operations.

Venture capitalists demand guarantees of high returns because the risk is high that earnings will be slow in arriving, or will never materialize at all.

The venture capitalist is betting on a technology and the talent to put that technology into use.

Venture capital investment is best practiced by those who know a particular industry extremely well.

Angel Investors and Venture Capital

http://www.privco.com/knowledge-bank/private-equity-and-venture-capital

Venture Investing

The magic venture investing formula is simple: Invest in young, good, innovative, and growing companies while they are cheap.

But what is "good", and what is "cheap"?

7 Contrarian Principles – Ignoring Convention

Do not follow the crowd. Ignore the market, the crowd, and its fashions... More

Identifying an Outstanding Company: Buffett's Criteria2

Buffett's Three Non-financial Investment Criteria It is simple and understandable. It has a consistent operating history. It has favorable long-term prospects. Buffett's Four Financial Investment Criteria Return of equity (not earning per share) "Owner earning" (the share of profits that belongs to investors). Profit margins (which must be high) Return on reinvested profits (which must create at least $1 of market value for every dollar invested)

Six Questions for Measuring the Potential Investment

How long will it take for profits to pay back the investment? When will the cash stop flowing out and start returning? Do we really have to make this investment? What is the return on investment? Is that return comfortably above the true cost of the capital invested? Looking ahead, and allowing for interest rates, what is the future pay-off worth in today's values?

A to Z of Venture Investing

A-F: Opportunity Introduction Do most inventors approaching you lack business skills? If you don't want to miss a great investment opportunity but have no time to teach them the A,B,C, etc. of venture financing, just advise them to go thoroughly the steps of the Ten3 e-Coach on "Venture Financing". This will make your  communication with first-time entrepreneurs much more enjoyable and effective. Please send us e-mail if you wish to become an associate of the Ten3 e-Coach on Venture Financing and receive well prepared investment proposals from our graduates who will match with your investment selection criteria. G-M: Initial Screening Define criteria and follow procedures for evaluating business plan andmanagement team N-T: Due Diligence Investigate and evaluate the investment opportunity by conducting due diligence research: qualify risks, analyze and verify factors presented in the investment proposal U-Z: Negotiating and Closing the Deal Valuate the venture, structure the deal, draft and sign an investment agreement

http://www.1000ventures.com/venture_financing/venture%20investing_main.html

Calling all entrepreneurs. What must we learn from the spirit of the States?

After a week in Silicon Valley meeting some of the most fascinating entrepreneurs imaginable, isn't it time we started drawing some lessons from our friends on the West coast?

 

By Kamal Ahmed
Published: 7:29AM BST 01 Apr 2010

Recently, George Osborne asked why it was that, as yet, no Facebook or Google or Apple or YouTube had been launched on this side of the Atlantic.

He argued that there was something in our business investing culture that made it difficult to back innovative winners in the digital world and that the Government had failed to create the right culture of risk taking in business.

Although I'm not sure it's the Government's job to develop innovative cultures (the whiff of ill-fated "picking winners" always springs to mind), there is certainly something in the argument that we have much to learn from what happens in that area south of San Francisco that is known as Silicon Valley.

It is no co-incidence that Google, YouTube, Facebook, Yahoo, Apple and Cisco are all headquartered in the area south of San Francisco.

Two major tap roots appear to be essential to allow an innovative tree to flourish.

The first is an entrepreneurial spirit in academia and the second is venture capital funding that is willing to take - and therefore understands - risk. In Silicon Valley, Stanford University has had such a catalytic role it is difficult to over-estimate its importance.

Since the 1890s (yes, that's the 1890s) the University has seen its job as enabling the area to be a centre for economic development and industry - firstly engineering, and then the building of silicon chips and finally the support of a whole technology sector. Many professors have their own capital stakes in young entrepreneurs who were their own students.

The other is the role of funding. One venture capitalist I spoke to said a single fund in Silicon Valley matched the whole VC funding of technology in the UK. He said this was equivalent to about £800m, a figure that I have not had time to verify.

He also argued that traditional VC funding was always "on the back" of the companies it had invested in whereas he "didn't bother the people he invested in more than once a month". "I trust them to get on with it," he said.

One 30 minute meeting was enough for him to make a decision, not 50 meetings with 50 different sets of protocols to sign before releasing a few tens of thousands of pounds.

Now, I'm sure his view is skewed and there is lots of exciting venture capital and angel investing work in the UK, particularly supporting the technology industry. But I also know that if even the Government is saying "we must do more" there is clearly a significant problem.

How, then, do we create the correct culture here in the UK to invent the next Apple or the next YouTube?
I heard from two internet firms already huge in the US that they are planning big launches here because we have so many gaps in the market we are not filling ourselves.

What about traffic in the other direction?

What are the good things going on in the technology sector in the UK which we can showcase to the US and say, well, you might be good, but we are getting better?

Or is the picture here as bleak as some in California would have us believe?

http://www.telegraph.co.uk/finance/comment/kamal-ahmed/7543198/Calling-all-entrepreneurs.-What-must-we-learn-from-the-spirit-of-the-States.html