Venture Capital for Offshore Companies

Venture Capital for Offshore Companies By William Cate http://home.earthlink.net/~beowulfinvestments/williamcateventurec apitalampequityfinanceconsultant Venture Capital Firms have limited capital. Venture Capital Firm risk capital comes from American accredited investors and fund managers. These investors rarely want to risk their money outside the United States. The financial media's belief that risk capital is easily raised in the United States is not true. During the heyday of the DotCom Bubble, Venture Capital Firms funded one business in every 2,500 business plans that they reviewed. Today, studies show they fund one company in over 10,000 submitted business plans. The amount of initial funding has dropped to less than one million dollars. For their million dollars, the Venture Capitalist wants between 50% and 60% of the equity of the private company. Of course, a sophisticated American CFO knows that once the Venture Capital Firm commits a million dollars, it isn't that difficult to get them to risk more money on their company. The obstacle is getting the first million dollars. There are no studies for American Venture Capitalists funding non-American companies. The popular estimate among American financial experts is that the odds are about one chance in 25,000 business plans reviewed by an American Venture Capital firm. Canadian companies probably have better odds of raising money in the States than do European or Asian private companies. Foreign companies should forget seeking funding from American Accredited Investors because few will invest in companies more than fifty miles from their home. There is a non-U.S. Venture Capital group seeking to fund private companies in Canada, Europe and Asia. They are seeking companies with revenues between US$2 million and US$15 million. They will fund companies with a national market for their goods or services and showing at least a 15% pretax profit. The private company must be financially sound. This must be reflected by a local Chartered Accountant's audit of the private company. Private Company applicants need a business plan that includes a current audit. They should be seeking expansion capital to increase revenues and pretax profits. They must be willing to give up over 50% of their ownership for the equity funding. American Venture Capital Firm will initially risk a million dollars or less and await the outcome of their speculation. This offshore venture capital group wants to risk their money in a five-phase program reflected in the private company's business plan. They will fully fund the private company, but management can only expend the initial phase of the equity investment. If the outcome of the initial phase expenditures are as the company's management projected in their business plan, the next phase of the funding will be released and so on until all the investment has been expended in accordance with the Company's business plan. If the first phase outcome is not as the company's management projects, then the investor and management will develop a plan to better utilize the investment group's risk capital. The Offshore Venture Capital Group will invest 55% of the value of the private company in US Dollars or Euros. For their money, they will want 55% equity in the private company. The private company's business plan should include detailed information on their Government's foreign investment incentive program. Without some tax or other economic leverage from the private company's Government, it's unlikely that this group will invest in the private company. This venture capital group is offering an equity option that may not fit the needs of every offshore private company. The private company's management should consider the potential of local bank loans for the needed expansion capital of their company. The private company needs to determine the risk/reward ratio of a potential local bank loan against the risk/reward potential of an equity investment in their company. If the better option appears to be an equity investment, send me a 300-500 word Executive Summary of your business plan [billcate@Earthlink.net] and I'll estimate the odds of your company raising money from this venture capital source. Your Executive Summary must reflect your business plan that meets the investment criteria of this investment capital group. There are assorted merchant banking, venture capital and business lender methods to raise money for operating private companies almost anywhere in the World. One of the advantages of using a venture capital equity-funding source is that they are rarely front fees associated with their funding offer. There are no front fees with this equity capital groups offer. There are few real options for business funding for startup companies. My advice to startup clients is seek funding close to home. If your local bank won't loan your company money and the wealthy living within five miles of you won't risk their money; you are wasting your time seeking funding from overseas sources. Finding the right source of business capital can take your company years and cost your company hundreds of thousands of dollars. Any CFO (Chief Financial Officer) seeking corporate funding should adopt the Roman axiom of "Caveat Emptor." (Buyer Beware!).