Venture Financing:

Venture Capital

Venture Investing

e-Coach for Private and Corporate Investors

The Magic Investment Formula

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"?

Joel Greenblatt³, who has been incredibly successful running a hedge fund in part according to this Buffett-like approach, defines good and cheap companies as follows. Good companies earn high returns on their investments. Cheap companies sport share prices that are low (based on past earnings). His proxies for these criteria are return on capital (operating profit as a percentage of net working capital and net fixed assets) and earnings yield (pretax operating earnings compared with enterprise value, which is the market value plus the net debt).

How To Get Well Prepared Clients?

It's easy now. Just advise your prospective clients to follow the procedures of the free Ten³ step-by-step guide to venture financing or the Ten3 e-course on "Venture Financing". It will provide them with free guidance on when, how and what type of finance they should seek, how to prepare a sound venture proposition and a business plan, how to prepare and make a venture presentation, and how to negotiate and structure the deal.

VC Funding: Documents To Be Prepared

As a venture investor, this problem must be well known to you: too many inventors ask you to invest in their idea, but few can demonstrate sound skills of converting ideas into a profitable business. Indeed, most inventors lack entrepreneurial and business skills. According to Saratoga Ventures, only 6 out of 1000 business ideas get funded on average by venture capitalists. It does not mean that the remaining 994 out of 1000 ideas are not good enough. It's just you know that ideas are a dime a dozen, only execution skills count. So, you invest in people, not in ideas.

The Ten³ Business e-Coach can help you turn inventors approaching you into good entrepreneurs without any effort from your side. Our step-by-step guide on raising funds for start up ventures would help first-time entrepreneurs to understand your investment strategy and preferences and develop a business proposal that meets your expectations. All you need to do now is to advise ill-prepared inventors to go through all its  steps thoroughly and come back to you afterwards. And enjoy the results.

Syndicates of Venture Capital Investors

Some VC firms form venture capital keiretsu, loosely formed blocks of firms that invest together.

Corporate Investing

3 Strategies of Market Leaders

Corporations are a major – and rapidly growing – source of funds for new ventures.  Strategic benefits of corporate venture investing may include:

Passion-driven:

• Discovery of unmet customer needs and unserved emerging markets

• Potentially high return on investment

• Supplements to internal research and product/service development investments

• Improved efficiency of the value chain management, in particular supply chain and customer relationships

• Development of new business relationships

• Preparing potential candidates for strategic alliance or acquisition

Fear-driven:

• Reducing the risk of missing a new turn in technological development

• Preventing competitors from acquiring a breakthrough technology

• Motivating internal talents to outperform outside ventures

Valuation

The value of a company is the future cash that can be taken out of the business, discounted back to the present. The key to successful business valuation and investing is accurately estimating the magnitude and timing of these future cash flows, which are determined by:

• How profitable a company is (defined by how much its return on invested capital exceeds its weighted average cost of capital)

• How much it can grow the amount of capital it can invest at high rates over time.

• How sustainable its excess returns are.²

 Case in Point  Warren Buffett's Investment Criteria

Warren Buffett was once asked what is the most important thing he looks for when evaluating a company to invest in. Without hesitation, he replied, "Sustainable competitive advantage". Indeed, while business valuation matters, "it is the future growth and prosperity of the company underlying a stock, not its current price, that is most important. A company's prosperity, in turn, is driven by how powerful and enduring its competitive advantages are."²

Sustainable competitive advantage and market category leadership give a company the edge that keep competitors at bay and reap extraordinary growth and profits. Warren Buffett seeks to identify rare companies with strong competitive advantage that has a potential to grow even stronger over time. When a company is able to achieve this, its investors can be rewarded for decades.

Often, investors in high-growth companies are disappointed not because the growth projections were terribly wrong, but because the implicit assumptions that the market is making about the sustainability of these companies' competitive advantages are wildly optimistic. Warren Buffett said it best in his Fortune article (November 1999):

"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors."

QuickValue PRO 3.0

Calculates the present value of any investment project or company share based on forecast cash flows and income proformas or actual data. Quick valuation of any project or business, or option using cash flow forecasting, black-scholes formula or earnings forecasts. Provides five, ten, fifteen and twenty year value basis, share value and net worth.

References:

1. "Venture Catalyst", Donald L. Laurie

2. "Sustainable Competitive Advantage", Whitney Tilson,

3. "The Little Book that Beats the Market," Joel Greenblatt, the author of Magic Formula Investing

4. 10 Most Common IPR Mistakes During Venture Capital Due Diligence