The Hard­est Thing You Will Have To Do Is To Deter­mine How Much Money You Need.

Now I can imag­ine a few dif­fer­ent pos­si­ble thoughts fly­ing through the head of my reader. One of them being, well why not just over bud­get and then if there is money left over, what’s the big deal? Well, it kind of is big deal if you think about. Lets say for exam­ple that some­how you fig­ure that for the things you will need for your first one to two years of oper­a­tion, you really need say $25,000. Your cal­cu­la­tion is roughly bro­ken down into fig­ures that seem reasonable.

For exam­ple lets say that you feel you should be able to build your web­site for around $3000. The num­ber sounds about right, because you have heard plenty of peo­ple say that a pro­fes­sion­ally designed and devel­oped web­site costs about that much. Of course you know that there is some sort of expense involved in web host­ing, and that you also have to buy a domain. All this time since its the web­site you are believ­ing is going to be the heart of your busi­ness you try to get a real­is­tic esti­mate on it’s cost.

 

Now you real­ize that there are going to be other expenses as well such as adver­tis­ing and if your buy­ing and sell­ing a prod­uct on your web­site you know that there will be some expenses involved in that as well. You fig­ure by the time you are ready to seri­ously obtain the financ­ing you will need you will be able to come up with all sorts of facts and fig­ures to jus­tify what you felt was a pretty solid number.

Yet there is some­thing you just were not ready for. The peo­ple or places that you thought might want to lend you money along these lines, it turns out are not even inter­ested in lend­ing you that kind of money.

Now here is the part that you most like were not expect­ing to hear:

• The rea­son that they do not want to lend you “that kind of money” is not because you are ask­ing for too much money. You are actu­ally ask­ing for too lit­tle money, and these ven­ture cap­i­tal firms are not set up to do busi­ness with these kinds of numbers. 
• So nat­u­rally you fig­ure, oh okay, I can take on an employee, maybe rent an office, etc. In other words now you are try­ing to fig­ure out how to grow the expense for your “Lean Start Up” before you even get started, because the one lender you approached told you, his investors invest a min­i­mum of $250,000.00
• The rea­son for these kind of fig­ures are decep­tively sim­ple. The pack­age that has to get put together to obtain ven­ture cap­i­tal fund­ing, is quite com­plex. Also there is an expec­ta­tion of high returns on invest­ment (ROI). For decades banks have depended on read­ily avail­able sources of low risk invest­ment with a rel­a­tively nice return of 10% inter­est. [ More on this in some other forum ] So now when the ven­ture cap­i­tal­ist is going to take “actual risk” he wants a sig­nif­i­cantly higher rate of return. 

• 
  

   THE FIGURES I AM ABOUT TO SHARE WITH YOU ARE FROM 

  INSIDE SOURCES- SOMEONE ACTUALLY 

  IN THE VENTURE CAPITAL BUSINESS!

  WHEN A VENTURE CAPITAL FIRM LENDS OUT THE KIND OF MONEY I MENTIONED ABOVE, THEY WANT 30% INTEREST FOR THE TERM OF THEIR LOAN. ADDITIONALLY THEY ARE EXPECTING TO GET PAID BACK THEIR ENTIRE INVESTMENT IN AROUND THREE TO FIVE YEARS. 
  

  
  
  No one I know (includ­ing myself)  is actu­ally seek­ing out this sort of invest­ment. When I con­sider even the strongest of my ven­tures I sim­ply can­not imag­ine want­ing to get into such a seem­ingly raw deal as the one described above, Yet some­how in the end when the thing goes into a an ini­tial pub­lic offer­ing (IPO) then some­how every­one is happy and all the peo­ple involved make many mil­lions of dollars.
  
  
  [ To be continued ]
  Stephen C. Sanders
  Ip-Ipo.com
  When a project goes from an inter­net based ven­ture to an ini­tial pub­lic offer­ing there are all sorts of large amounts of money involved. There­fore the largest com­pa­nies often have an method of own­er­ship where a sig­nif­i­cant por­tion of the com­pa­nies ass­est are held by those who buy stock in the company.
  

  When I was look­ing for the “Money” image I guess my daughter’s iphone auto­mat­i­cally saves the image as photo.jpg, so I never even knew I had this one.