Venture Capital Tips

More angel investors should be developed in the Philippines to finance entrepreneurial businesses in a more supportive way. But entrepreneurs really do hold a lot of the key to getting more angel investors.
Here are tips from Denny S. Roja, managing partner of Palo Alto-based Acuity Ventures.
Angel investors bring these values--
• sophisticated knowledge and understanding of a technology business
• executive experience, having built businesses or having conducted initial public offerings (IPOs)
• good contacts and strong networks, and
• deep pockets and long arms.
“They will help you not make mistakes,” he said in an Ayala Foundation Inc. Innovation Forum.
Here are some of his what’s hot—web-based software (software as a service or SaaS model), green or clean technology, health care, mobile applications, social networking, and online search optimization.
And the what’s not? Semiconductor, electronics, anything capital intensive.
A good angel investor is one who is not contentious about valuation.
In general, whether the investor is a relative, a friend, or a professional partner, an entrepreneur has to treat all of them alike:
• communicate risk-reward profile
• fully and formally document the deal
• treat them professionally
• treat the deal as arms length transaction
• employ the proper equity structure (common stock, debt with warrants).
“Communicate they can lose their money.”
In many ways, financing through venture capitalists may have many disadvantages— pressure to meet financial projections, loss of independence in management.
Not all technology businesses may become a big hit like Google, so here are questions to ask a potential venture—see whether it
• has a global, scalable market
• is a game changer—one innovative enough to change the rules of the market
• has a dominant market share
• has a huge revenue opportunity
• has obscene profit margins
• has big dollar investment
• has astronomical returns of at least more than five times in five years.
A tighter budget may be advantageous since it can “minimize out-of-control cash drains and drive cash flow to breakeven more quickly.” With more fund from the entrepreneur, he owns more capital in the business.
Of course, without any financier, a startup can resort to bootstrapping, or making it work all by himself through
• starting small, spending little
• proving the business idea first
• having customers before it even starts, letting customers finance it
• putting selling as the most important function in the business
• putting a focus on cash flow rather than profits—collecting receivable upfront, going long on payables.
“When you’re out of cash, you’re out of business,” said Roja. “In software, bootstrapping can take you a long way.”----------