There's venture capital out there; are you ready for it? | Barfield on ...

By John Shank, BMSS Shareholder, CPA, CVA

At Barfield, Murphy, Shank and Smith, I work with a lot of our venture capital backed clients. Keith Barfield asked me to write this guest blog post about what technology companies need to know when it comes to venture capital.

Simply defined, venture capital funding involves an outside investor putting capital into a business. They?re not offering sweat equity or intellectual capital ? they just want to see higher returns than they might get with a more traditional investment. Some may be looking for companies in certain industries, while others may just be looking for a good business.

You may be thinking this sounds a little like an angel investor. They are similar, but angel Investors are typically willing to put in less money. They also want to invest in an entity that?s in the conceptual stage and more speculative in nature. They?re kind of like an angel who?s coming in to rescue a business that?s just starting out.

Venture capitalists want established companies. And they know there can be?potential for explosive growth and?high?returns with technology companies. Basically, venture capital likes all business but technology companies REALLY like venture capital since there?s so much potential for everyone who?s involved.

But how does a technology company position itself to be in the venture capital game? If your company has these six elements in place, you?re ready to approach venture capital funding:

1. Documented track record. You must have audited financial statements by a reputable firm that venture capital investors can believe in.

2. Well-defined management data. You need to know who your top customers are, who you should be going after that you?re not and what your operating metrics are.

3. Sustainable customer base. Your product or service may have a huge customer base right now and for the next five years, but what about year six? Venture capitalists don?t want to invest in a company that will soon become irrelevant.

4. Well-rounded management team. Your company can?t be dependent on one guy and his charismatic personality or the information that?s only found in his head. It may be beneficial to have a superstar on the team, but there need to be others who have the knowledge and ability to step into that role if necessary.

5. Realistic expectations.? Don?t be too closely married to your business or let your identity get caught up in what you do. Owners are often disappointed after an initial investment offer of $1 million if they think their business is worth $2 million. Realign your expectations in the beginning of the process, not at the end.

6. Be willing to relinquish control. Accept that venture capital means a loss of total control. And it makes sense. If a venture capital puts $2 million into your company, they want some say in what?s going on.

For those companies who have all these elements in place, there?s a lot of money out there that venture capitalists want to invest. We have two to three venture capital funds come through BMSS at least every quarter or every six months. They have new funds in their portfolio but need a company to invest in. We?d like nothing more than to match them up with the perfect company.

And if looking at our list made your head spin, we can help you figure it all out too.

Technology accounting specialist and CITP,?Keith Barfield?of?Barfield, Murphy, Shank & Smith?helps Alabama technology companies and emerging industries, including software development, internet design and controls and online training with their exact accounting needs through our?Technology Division.?

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Source: http://www.barfieldontechnology.com/2012/08/21/theres-venture-capital-out-there-are-you-ready-for-it/?utm_source=rss&utm_medium=rss&utm_campaign=theres-venture-capital-out-there-are-you-ready-for-it