How to Know if You Need Short, Medium or Long Term Investing
VC investors have high expectations when placing money in the hands of invested companies. A plentiful return, repayment within designated time, and a valuable experience worth the VC’s endeavor are sought conclusions.
Venture capitalists offer funds in short, medium, and long-term periods. Which is best for particular endeavors? Like the needy entrepreneurs and business owners, VCs take a gamble on investing in new companies. Many factors are involved to secure the future of any investment; considering particular attributes and behaviors of respective outfits and overall verticals help narrow the risk.
Weigh philosophies encompassing short, medium, and long-term VC enterprises.
Short Term
Short-term investments seek a short turnaround -a span when monies are lent and helped businesses quickly make profits, repaying VC investments with interest.
VCs weigh suitors on a number of factors including the team’s experience, the offered product/service, the market, and the company’s present share of the market or projected growth within. (1)
Short-term investors need to know efficient operations and a stronghold on the present or intended market will compensate the short span of relations. For example, VCs are presently fond of renewable energy outfits, due to nations’ celebrations of renewable energy and associated endeavors. (2)
Without a promising start or past successes to refer to, VCs need be wary of making shorter investments, those demanding quick monetary traction while upholding the reputation of VC’s decisions.
Middle Term
Middle term investing may involve a person or potential outfit experiencing a series of events (or rounds) before really getting the business going. For example, a biomedical scientist presently working at a University may entertain notions of becoming an entrepreneur in addition to a professional of science. (3)
It’s estimated about $780 million in VC funds went toward life sciences companies in the first quarter of 2012. Venture capitalists amid longer relations with sought owners need compete with corporate venture pursuits, exercised by large corporations providing funds and counseling; the difference being the corporation seeks to leverage a market as an extension of its existing one rather than seeking strict financial gain. (4)
Long Term
Operating a business longer than three years is difficult for a high number of young entrepreneurs as many fail within the beginning years. Moreover, running an ongoing profitable business, enabling one to place funds back in the business, in their own pocket, and return to VCs is especially difficult. However, VCs understand higher returns are oft associated with longer exit strategies (5)
VC long-term investors look toward evolving industries, such as those involved with digital information and the Internet. One enterprise party invested $130 million in Brazil, South America’s largest economy, for endeavors involving Internet startups. This particular venture fielded more monies than originally sought due to the promise of the Web, mobile usage, and the evolving business landscape of Brazil. Additionally, capitalists believe investing in new lands invites more entrepreneurs in the waiting to seek funding.
Kevin Aldrige is a business finance consultant. He enjoys sharing his knowledge and tips through blogging. Visit CSS Partners to find out more.
References:
(1) http://iterativepath.wordpress.com/2013/02/11/how-vcs-decide-to-invest-in-your-startup/
(2) http://www.pv-magazine.com/news/details/beitrag/renewable-energy-vc-funding-to-triple-_100009315
(3) http://www.xconomy.com/national/2012/07/02/whos-still-active-among-the-early-stage-biotech-vcs/
(4) http://www.cbinsights.com/blog/venture-capital/corporate-venture-capital-quarterly-q2-2012
(5) http://www.angelblog.net/Venture_Capital_Exit_Times.html
(6) http://dealbook.nytimes.com/2012/07/23/venture-capital-firm-makes-long-term-bet-on-brazil/
Category: Investing
