Best Practices for Business Owners Essay

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parameters, there are five general traits of attracting venture capitalists that should be assessed and analyzed. In no particular order, they are scrutinizing your business with a critical eye, beefing up of management, keeping up a high profile, targeting of the search, keeping a lookout and the investigation of possible venture partners. The author of this report has been asked to determine and explain which step is the "most difficult" for an entrepreneur to completely and why. Subsequent to that, there will be an explanation of how to attract venture capitalists while making the foundations of the business in question strong.

Of the five mentioned above, the one that would seem to be the most difficult would be keeping a high profile. So much of life and business is about managing perceptions and most people know full well that perceptions are subject to just that…perception. Venture capitalists are obviously trying to weed out the good opportunities and appearances are obviously made to be deceiving a lot of the time. To combat this and to make sure that the venture capitalists take notice, the beefing up of management and keeping the business running very well are extremely important, even more so than getting on the radar of venture capitalists. Indeed, if the fundamentals and details of the business are paltry and poor, the venture capitalist will gladly move on to the next prospect if there is even a sniff of malfeasance, poor fundamentals or deception. They key is to have a strong business that can be sold to others and that the details presented during that sale are actually realistic and attractive to venture capitalists. To put it concisely, venture capitalist are attracted by a good image and sales job but there has to be substance (Entrepreneur, 2005).

Venture Capital & Angel Investors

The author of these responses is now to look at the conflicts and issues that arise between venture capitalists and angel investors. The author of this report will offer three different forms of conflicts and issues that arise between angel investors and venture capitalists as well as two ways to mitigate such issues. Before getting into the conflicts, it would be informative to look at what angel investors are as this would inform why they happen to often butt heads with venture capitalists. As explained by Richard Harroch, angel investors have six basic things they look for, those being the quality/passion of the founders, the market opportunity that is being addressed, a clearly thought out business plan, interesting technology/intellectual property, appropriate valuation and the overall viability of raising additional financing as progress is made (Harroch, 2015).

One issue that could arise is angel investors, per the Harroch story, typically only invest 25k to 100k and that is really not a lot of money in the grand scheme of things. Placating and satiating a modest to large group of angel investors may be hard to pull off. Second, not all venture capitalists are about integrity and commitment. They are more focused on returns and the dollars/cents behind the deal. Third, the aforementioned "reasonable terms" and the expectations related to the same are obviously going to vary from person to person. The ways to deal with that is for the startup to be brutally honest about their plans and that they are not really interested in investors that see things differently as they wish to have an investor/manager alignment. Second, limiting the amount of overall investors (angel or otherwise) is probably a good idea for logistical and management reasons (Harroch, 2015).

Financial Statement Perceptions -- Owners vs. Investors

The author of this report is now asked to assess how financial statements figure into the venture capital paradigm including what an investor would tend to seize on in terms of financial ratios and statistics and what an owner would do when engaging in the same analysis. To state the obvious, an investor is generally going to be looking at metrics that lead to returns on their investment including profits, dividends and the like. An owner may be focused on that but there is a good chance they could be focused on other things like business mix, research and development, the longer haul rather than short-term gains and so forth.

When it comes to investors, they're going to be looking at overall profits margins and profits in terms of dollars and proportion to revenue, cost of goods sold and so forth. When it comes to owners, they would be focusing on what is important to them. A small business owner, for example, may very well be fine with the status quo and may not be enchanted with growing the business.

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However, an investor in the business will want to see their returns be maximized and as consistent as possible. An investor will seize on return on assets, return on equity, growth rate and things like that. An owner will likely look at other things like total debt, total cash flow and so forth because those have more bearing on day-to-day activities. The owner is more concerned about his/her own perspective and goals while an investor is looking to maximize growth and their return on investment. However, both the owners and the investors are going to want to be sure that the firm is in overall good financial shape and that the fundamentals of the business over the long-term are solid. Short-term gains are all well and good but do not necessarily speak of long-term success (Bradshaw, 2011).

Elevator Pitch & Type of Investors

The fourth stanza of questions has two major points, those being the type of points that should be made in an elevator pitch and the type of investors from which money is typically sought. As it relates to the former, the points that should be hit upon with an elevator pitch should include the nature of the business, why and how opportunity exists in the marketplace, the types of profits and growth that can be realized and the pieces that are in place as it pertains to all of the above. In short, the important points need to be hit but one cannot dawdle too much on one topic as rambling and focusing too much on any one thing will take away from the efficacy of the pitch. As is easy to note from the term "elevator pitch," it something that must be impactful, to the point and rich with things that attract the people being sold to (Huffington Post, 2015).

As far as what the author of this report personally feels and thinks when it comes to the type of investors that can be sought after and which ones should get precedence over the others, the author has a few feelings. Of course, the assignment notes that the types of investors are bankers, angel investors, VC partners, suppliers and potential key employees. The most important ones that the author of this report would focus on are potential key employees and suppliers because those two groups are the most integral to the business. To be sure, venture capital, loans from banks and so forth are often going to be necessary. However, those supplies and potential key employees are going to have proverbial "skin in the game" and they will thus be attuned to the overall picture of the business rather than just potential profits and other more constricted points-of-view. Based on that, the ranking would be PKE's, suppliers, angels, banks and VC's.

Public Offering

The fifth set of questions and considerations relates to public offerings. Of course, this would be the point for any company where they can go from being a modest-sized company to a national behemoth, or at least somewhere in between. As asked by the assignment, the author will explain the conditions and reasons that should lead to a public offering. Next, there will be a pros and cons review of IPO's from the owner's standpoint. Finally, there will be a pros and cons from an investor point-of-view. All of the above will be compared and contrasted.

In general terms, an initial public offering is quite possibly the most effective way to get money for working capital and investment. Rather than then getting big pots of money from a few people, there is instead a lot of individuals that are grabbing smaller amounts of ownership. For sure, they still have control in the form of a shareholder vote. However, unless those shareholder votes are coalesced in groups or in the form of single shareholders that have a lot of stock, power is diffused quite far between the investors. This works well for the owner in that they get more capital, they don't lose complete control as they are likely still one of the biggest investors and their ability to grow rises sharply. However, they do lose a lot of control, they have publicly report their financials and the ethics of things change. From an investor point-of-view, they also lose control, attempts to maximize profit….....

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