The Dilemma for Managers’ Investments in Venture Capital

Many factors influence the decision power of managers. These factors can be internal or external. There are vast numbers of variables influenced by these factors.

A company has many reasons for investing in venture capital. Corporate venture can be defined as “strategic mechanism to attract, qualify, and monetize value from assets which originate externally or are beyond a clear fit with the organization’s existing focus”. Investments are required for small firms to start-up their business and do new innovations.

Corporate venture tool is very helpful for creating economic benefits. It includes the gain of break through technologies and relocating the status of business. This investment is very helpful for growth of a business as it allows the company to expand itself for entering into new market of opportunities. A company should identify that whether required investment is financially possible for it and in return would it be profitable? At time of investment, it is very important for a company to realize whether goals can be achieved by this investment program.

Manager’s responsibility is to make decisions that are beneficial for their organization and decisions shall be based on available information at time of crisis.

Many firms who have done heavy investments at start don’t necessarily end up well. There was a heavy amount of down fall between 2000 and 2001 and around 80% of decrease occurred in Corporate Venture Capital investments. The reason was that company’s expectations were high for such investments. This high instability in investments reflects that it is very difficult for many companies to manage their investments in this fast-paced and high risk environment. Past experience has placed great impact at any company and sometimes they are so uncertain whether they should invest or not even if company is doing well. So these investment programs are very helpful for understanding functions used in corporate development. There are strategic reasons to start projects out of which some go successful and rest of them fail.

There are two main characteristics of investments done in corporate venture capital, named as objectives and degree of investment at start-up. Different companies have range of such investments and this funding proves fruitful in long run. Strategic investment means that a company is investing to promote its sales and profits. A company which involves strategic investment locates and exploits synergies between itself and a new venture.

In addition to a strategic objective, an organization may have financial objective. This shows that main purpose of investment is to ensure as high return as possible. There are many competitive advantages of Corporate Venture Capital division over private Venture Capital. Some of them are superior knowledge of markets or technologies, its strong balance sheets and its ability to be a patient investor.

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An Insurance Broker Saves You Money and You Don’t Pay Extra for His Service

Insurance brokers are full-time intermediaries offering insurance service on the basis of professional expertise and competence. An insurance broker acts as intermediary for the insured but usually remunerated by a commission from the insurer.

Though most insurance brokers specialize in placing commercial insurance businesses, there are brokers out there that also cater for non commercial clients like you and I.

In carrying out their mediation role, the key function of the broker starts with understanding the needs of the client, the risks the client is exposed to and the customer’s insurance needs. Essentially just as we divulge all relating to an illness or condition when we visit the doctor to enable the doctor diagnose and then prescribe a cure, in a similar way the client must be open with the broker so the latter is able to highlight risks the client may be exposed to and thus recommend appropriate insurance protection.

Brokers are responsible jointly with their principal i.e. the client in ensuring that insurers are fully informed of all material facts necessary to underwrite any class of insurance.

Other important function the broker performs include:

checking and in some cases issuing policies
assisting in the negotiation of claims / liaise with loss adjusters
negotiating with insurers on the client’s behalf
acting promptly on instructions from the client /providing progress report

Some struggle with insurance transactions for different reasons ranging from the failure to thoroughly understand the insurance policy document which is the evidence of the contract, to the inability to understand the sometimes intricate nature of the insurance mechanism.

This difficulty with insurance from the inception of the contract manifests usually to the detriment of the insured when a loss is reported and the insurer adjudges same inadmissible under the terms of the policy document.

Taking advantage of advancement in technology, the insurance broker is able to compare a variety of insurance policies as well as competitive rate at the touch of a button and unlike the comparison websites, the client gets a tailor-made policy at a premium/price that is competitive.

The insurance brokers’ roles in assisting their clients arrange the appropriate insurance protection, continually reviewing cover requirement and updating same with insurers cannot be understated. With the appropriate insurance protection in place, the broker is also able to easily ensure that valid insurance claims are not only paid but paid promptly too.

Having a broker handle your insurance arrangements is like out-sourcing that aspect of your task. For a commercial client, this is equivalent to having a full department that caters for everything about insurance with that client not having to worry about the cost of running the department.

The broker accepting the responsibility is eager to impress as this might earn him referrals in addition to commission and as insurance brokers are closely supervised by the Financial Services Authority, the broker also has a duty to ensure that service level and conduct conforms with strict guidelines of the regulatory authority.

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Things to Remember While Writing a Finance Blog

Finance! What a vast and valuable subject that gets covered in seven letters? This seven letter word is what is gripping the entire world. There are so many research and analysis going on in this field. And so also it is a library of jargon words. But, these are not for common man. But of course, a blog is, especially a Finance Blog. Many get turned away by the word Finance itself, but when put in simple and a very down to earth manner, more people understand and get benefited with it. And this is what we are going to see now. What we should keep in mind while writing a Finance Blog?

The first and foremost thing that is to be understood is that, you are writing a blog for one and all. The readers mostly are people who do not know much about the technicalities of Finance. Tell to yourself that you are not writing any research paper on Finance. Keeping these in mind, we should make the language in our blog simple and easy to understand.

As said earlier, Finance is a huge subject with many categories. Even before starting your blog writing, decide upon what category you want to write. And even more important is to stick to it. This is very important because of the close inter-relation of these categories that can easily carry you away to a different category all together, and without your knowledge. For eg. You may start writing on ‘How to manage your Personal Finance’. There comes one crucial point in it about repaying your high priority debts. Here you can easily end up writing more about that and ignore other points of budgeting.

It is true that at times, you are forced to add some technical terms as you have no other option. Fine, no problem, you can use it, but do not forget to link it to the site that explains the meaning of it in an easy and understandable language.

There may be certain complicated procedures that are the solutions for a certain finance problem. Try to give them in the simplest possible way. For more clarity, you can create links to make it helpful.

Keep a flow in your writing. Jumping from one area to the other while writing will bring in a sense of disinterest among the readers.

Keep yourself updated first. Check out the information and latest developments in the Finance Sector. Read others blogs on related contents. You will get more information, solution, points that you would have overlooked. These will help you to vent your opinion even much better.

If you are a first timer, you may find it difficult to get the flow in the beginning. You can take tips and advises from other bloggers related to this field and read their finance blog. This will be of great help to make a great start.

Putting in your own related experience will make more sense and attract more readers.

Make it a point to make your blog interesting, helpful and informative to others. This is sure to make you a successful blogger.

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The Evolution of Financing a Small Business

For years I have read the popular business magazines, all having so called experts write articles for entrepreneurs on how to finance their business. “The top 10 strategies for financing your start-up”, “How the SBA can help your small business”, “Personal credit is the key for entrepreneurs” and so on. In most cases I’m willing to bet those writing these articles are journalists that have never had a successful start-up. How can I come to that conclusion you may ask? Because of the bad advice they give.

Going to the SBA for a loan, using your retirement funds, tapping all your personal credit cards or giving up 75% of your idea to an investor are all ideas I have read from the popular magazines. The thing is, in every one of these cases you are using your personal credit and not separating you from your business. You are putting 100% of your credit and assets at risk.

I have worked with thousands of small business owners who have been very successful without the need to use their personal credit cards, retirement funds or fill out stacks of paperwork and wait months for a response from SBA backed banks. In fact I have seen entrepreneurs with access to hundreds of thousands of dollars without giving up a percentage of their company or having any of the money show up on a personal credit report. Sounds good right? Well, there is one catch. You will need to go through the evolution of financing your business. You can’t start at the end. This is the problem with most entrepreneurs. They want fast results and aren’t willing to wait. By taking the quick fix they give up ownership and put their personal credit at risk.

The evolution of business financing starts with a solid foundation for your business. A solid foundation is comprised of several parts. The first of which is structuring your business entity appropriately. I recommend to every entrepreneur that you use a Sub Chapter S-Corporation, C-Corporation or Limited Liability Company to operate the business. This is the first step in separating the business owner from the business. The next phase of building the solid foundation is to ensure the business is in compliance with the lending markets. Several business owners are surprised when I tell them most lenders we work with when reviewing a credit application will first call directory assistance to see if your phone number is listed. It’s a simple check, but it’s the first flag that will be raised for them if the business isn’t listed. Why would a lender finance a company that doesn’t want anyone to find them?

There are hundreds of other due diligence phases that a company must go through in order to ensure the owner and business are not considered “high-risk” for obtaining credit and financing. The more a business has in place to show that it is a real business the more likely a lender will grant credit to that company.

The second step in the evolution of small business financing is to define what the business does, what makes it unique and why it will be successful. The business owner must create a one-page “sales pitch” for the business, also referred to as an executive summary. The executive summary can be used when applying for credit, seeking investors and developing marketing campaigns.

Business owners need to keep in mind when seeking financing that the most important thing for a business is to produce a profit. Without revenue there will be no profit. Marketing the business will help produce the revenue and the executive summary will help create the marketing.

Third, a company must build a business credit report separate from the owner’s personal credit. By working with trade credit, the single largest source of lending in the entire world, a small business can tap into limitless leverage for buying goods and services they need to start, run and grow the company. The beautiful thing about trade credit is in many cases it’s free money. If a vendor grants terms of net 30, a business owner has the ability to use the vendors goods or services for 30 days without interest before they need to pay the vendor. The other wonderful part of trade credit is that there are companies offering products and services small business owners need who will report the credit to a business credit bureau. The reporting of the trade line will create a business credit profile separate from the personal credit of the business owner. Eventually the business will be able to access more and more credit under the business name only if it maintains a positive business credit score.

The more credit received under the business name the more likely other companies will grant that business credit. No one wants to be the first in line to grant a business $50,000 in credit, but if others already have they will be more inclined.

Fourth, is to use the owner’s positive personal credit score in combination with a positive business credit score as leverage for obtaining hundreds of thousands of dollars in unsecured lines of credit for the business. The key is to do this with lenders that don’t report the accounts to the personal credit bureaus but rather the business credit bureaus. Many banks offer business lines of credit and loans, however finding the right type of product from these banks can be tricky. A business owner needs to make sure the loan or credit line they apply for reports only to the business bureau.

By keeping business debt separated from the personal credit report, a business owner has the ability to keep their personal credit score high. The more a business owner uses their personal credit in the business, the lower the score will drop. Credit scores determine the ability to buy homes, rates on car insurance, and several other factors. Keeping a personal credit score above 720 is extremely helpful in the business owner’s personal and business life.

The fifth stage of the business financing evolution is to look at other alternative financing the business may be able to obtain. Leasing is one key area. Why use precious cash reserves to buy equipment or software when you can make a small monthly payment? In addition 100% of the payment on the lease is expensed.

The final stage deals with investors. The majority of investors don’t want to look at companies unless they have already progressed through the business evolution stages outlined above. Keep in mind that an investor is not just investing in a business they are investing in the business owner as well. If the business owner has tapped every available resource for credit and cash personally and never taken the time to establish business credit, financing or lease arrangements an investor will toss that company’s proposal in the garbage quickly.

Not every business owner will find themselves at the stage they need an investor. They may have a combination of enough cash-flow, credit and financing in place from the early stages that they won’t need additional capital. However, if a business needs to grow with the help of additional capital or financing there are two typical ways an investor will look at the deal.

The first is through debt financing and the second equity financing. Debt financing with an investor is where they provide a loan to the business in exchange for a pre-determined amount of interest. Equity financing is where an investor puts money into a business in exchange for ownership. There can also be a combination of debt and equity.

The majority of small business owners believe this is where they should start, with the investor. In reality this is the last place a business owner should look. Investors want to use their money to grow a business by having the money spent on revenue generating activities. The typical small business owner that goes to an investor says “I need a million dollars to start my business.” When asked what they’re going to use the money for they say, “start-up costs and payroll”. This is where the investor walks away. No investor wants to fund a project so the business owner can make payroll, buy office furniture, equipment or office supplies.

This is the perfect example of the evolution of business financing. The company starts out as an idea, then structure is put in place. Next, the business becomes real with licenses and a sign outside the building. Next, the business creates an identity with the right message. Then the business obtains trade credit that separates the personal and business credit in order to obtain larger lines of unsecured credit. All of which is used to build the infrastructure of the business without maxing out all the available credit for the business or business owner. Last, the business has the ability to seek investors because it has done everything required to create the solid foundation.

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