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Tuesday, November 24, 2009
Top Management Tools
Tuesday, February 17, 2009
What is An Angel Investor?
According to the Colorado Capital Alliance, surveys of angel investors show that:
Angels are seeking companies with high growth potential, proven management and sufficient information about the company, its management team, and its market to be able to assess a company's value
On average, Angels expect 10 to 15 percent above of the S&P 500 return on equity
Typically, Angels invest in companies seeking between $50,000 and $1,000,000
Angels generally prefer to finance manufacturing or product-oriented ventures, especially in the high-tech fields
On average, Angels are 47 years old, have a postgraduate degree, and management experience in an entrepreneurial venture
Much of an Angel's value of their involvement is their business experience and willingness to assist growing the business. Make no mistake though, they are looking for a return on their investment as well.
Before you approach any Angel or other investor, you need to develop a comprehensive business plan PDF (177 KB - 31 pages) and set of Financial projection (208 KB - XLS). Also, when accepting capital from Angels, there are some legal issues you be know. Any sale of stock must comply with federal and state securities laws. Such laws were created to assure that buyers are fully informed of a company's situation. Entrepreneurs and their teams must be forthcoming with information that investors need to properly assess the business.
Much of the information is normally contained in the business plan or in a more legal description, the Private Placement Memorandum. Much of the legal guidelines for making such investments fall under the Securities and Exchange Commission's Regulation D, Rules 504-506. It is important to know that the rules can hamper additional fund raising during the subsequent 12 months.
KEY- Venture Capital
Labels: Venture capital
The Venture Capital Process
1. Deal origination
3. Evaluation or due diligence
4. Deal structuring
5. Post-investment activities and exit
1. Deal origination A continuous flow of deals is essential for the venture capital business. Deals may originate in various ways. Referral system is an important source of deals. Deals may be referred to the VCs through their parent organizations, trade partners, industry associations, friends etc. The venture capital industry in India has become quite proactive in its approach to generating the deal flow by encouraging individuals to come up with their business plans. Consultancy firms like Mckinsey and Arthur Anderson have come up with business plan competitions on an all India basis through the popular press as well as direct interaction with premier educational and research institutions to source new and innovative ideas. The short listed plans are provided with necessary expertise through people who have experience in the industry.
2. Screening VCFs carry out initial screening of all projects on the basis of some broad criteria. For example the screening process may limit projects to areas in which the venture capitalist is familiar in terms of technology, or product, or market scope. The size of investment, geographical location and stage of financing could also be used as the broad screening criteria.
3. Evaluation or due diligence Once a proposal has passed through initial screening, it is subjected to a detailed evaluation or due diligence process. Most ventures are new and the entrepreneurs may lack operating experience. Hence a sophisticated, formal evaluation is neither possible nor desirable. The VCs thus rely on a subjective but comprehensive, evaluation. VCFs evaluate the quality of the entrepreneur before appraising the characteristics of the product, market or technology. Most venture capitalists ask for a business plan to make an assessment of the possible risk and expected return on the venture.
According to a study conducted by Professor IM Pandey of Indian Institute of Management, Ahmedabad a venture capital fund places most importance on the following eleven parameters in the same order of importance while evaluating a venture for possible funding: Integrity, urge to grow, long-term vision, commercial orientation, critical competence vis-à-vis venture, ability to evaluate and react to risk, well-thought out strategy to remain ahead of competition, high market growth rate, expected return over 25% p.a. in five years, managerial skills, marketing skills.
Investment Valuation The investment valuation process is aimed at ascertaining an acceptable price for the deal. The valuation process goes through the following steps:
Projections on future revenue and profitability
Expected market capitalization
Deciding on the ownership stake based on the return expected on the proposed investment
The pricing thus calculated is rationalized after taking in to consideration various economic scenarios, demand and supply of capital, founder's/management team's track record, innovation/ unique selling propositions (USPs), the product/service size of the potential market, etc
4. Deal Structuring Once the venture has been evaluated as viable, the venture capitalist and the investment company negotiate the terms of the deal, i.e. the amount, form and price of the investment. This process is termed as deal structuring. The agreement also includes the protective covenants and earn-out arrangements. Covenants include the venture capitalists right to control the investee company and to change its management if needed, buy back arrangements, acquisition, making initial public offerings (IPOs) etc, Earn-out arrangements specify the entrepreneur's equity share and the objectives to be achieved.
Venture capitalists generally negotiate deals to ensure protection of their interests. They would like a deal to provide for:
A return commensurate with the risk
Influence over the firm through board membership
Assuring investment liquidity
The right to replace management in case of consistent poor managerial performance.
The investee companies would like the deal to be structured in such a way that their interests are protected. They would like to earn reasonable return, minimize taxes, have enough liquidity to operate their business and remain in commanding position of their business.
There are a number of common concerns shared by both the venture capitalists and the investee companies. They should be flexible, and have a structure, which protects their mutual interests and provides enough incentives to both to cooperate with each other.
The instruments to be used in structuring deals are many and varied. The objective in selecting the instrument would be to maximize (or optimize) venture capital's returns/protection and yet satisfy the entrepreneur's requirements. The different instruments through which a Venture Capitalist could invest a company include: Equity shares, preference shares, loans, warrants and options.
5. Post-investment Activities and Exit Once the deal has been structured and agreement finalized, the venture capitalist generally assumes the role of a partner and collaborator. He also gets involved in shaping of the direction of the venture. This may be done via a formal representation of the board of directors, or informal influence in improving the quality of marketing, finance and other managerial functions. The degree of the venture capitalists involvement depends on his policy. It may not, however, be desirable for a venture capitalist to get involved in the day-to-day operation of the venture. If a financial or managerial crisis occurs, the venture capitalist may intervene, and even install a new management team.
Venture capitalists typically aim at making medium-to long-term capital gains. They generally want to cash-out their gains in five to ten years after the initial investment. They play a positive role in directing the company towards particular exit routes. A venture capitalist can exit in four ways:
Initial Public Offerings (IPOs)
Acquisition by another company
Repurchase of the venture capitalist?s share by the investee company
Purchase of the VC's share by a third party.
Labels: Venture capital
Thursday, January 08, 2009
2009 and salaried class
If you are a salaried professional, don't expect the New Year to be a 'great', or even a 'good' year. For those of us who are already employed, here is what we can expect in 2009.
Most of your companies are likely to tighten the screws on performance. This may mean longer work hours, work which is not up to your choice, lower tolerance towards non/weak performance.
With organisations cutting down on their expansion plans, or faced with lower business growth, forget about the promotion you were expecting.
More and more organisations will adopt the Jack Welch model of purging the bottom 10 per cent (asking the bottom performers to go). In some sectors, such as retail, realty, textiles and apparel, this figure may be higher.
Don't be surprised if you are transferred suddenly to a department/location, which is not of your choice.
Companies are likely to have a conservative approach on the per cent increments, and some sectors could see single-digit increments.
Employees in the top quartile of performers in their organisation may earn similar increases to previous years. However, the rest may see a drop in per cent increments. We are likely to see a few cases of 'increment holidays' and isolated instances of pay reductions.
Variable bonuses will be subdued, but I reckon that sales employees may see stronger incentive schemes since organisations will try hard to shore up their revenues.
The silver lining in all this is that with organisations going slow on external hiring, they will look for internal candidates. The external job market will also contract, but that does not mean there will be no job opportunities. Job opportunities will be largely fuelled by employee attrition/ turnover.
The demand for freshers will see an acute drop. The practice of fat signing-on bonuses are likely to be suspended. Largely, it is going to be a clear case of higher supply and lower demand. The only exception in the external job market is going to be for the 'star performers'.
Here are some pointers for those of us who will get impacted by the above scenario:
o The first priority should be to secure your job and ensure that your name does not figure in the list of out placed employees. Pull up your socks and ensure that you do not belong to the bottom quartile of performers.
o Be patient. Do not get upset at the lower increment, or delayed promotion.
o Be extra cautious while taking a decision to change jobs. Unless the reason is compelling, you are possibly better off staying in your current organisation. If you do choose to make a change, negotiate hard with your new employer for a good hike and, if possible, a 'parachute mechanism' in case you are a victim of a layoff in the first year of your joining. This means you must be given 3-6 months compensation in case you are laid off.
o If you are in one of the highly volatile industries (retail, realty, finance, or banking) and if you feel that your organisation is showing signs of vulnerability, proactively scan the external job market.
o If you get an opportunity with a more reliable and stable brand, make the shift (even at the same salary). Look for signs of distress in your organisation (delayed salaries, vendors not being paid, senior managers leaving).
o In your existing organisation, take a lot of initiative and be seen as a solid contributor in your team. If you have time, upgrade your skills. Try and be in the good books of your boss without compromising your conscience.
o Salaried professionals have to wake up to the reality of what a downturn really means and 2009 is going to showcase enough of it. So far the situation is not as severe as to drop the 'oxygen masks', but yes, the 'seat belt' sign has been switched on.
Brace yourself for some turbulent times in 2009 and let's hope we have a smooth landing as we come out of the downturn in 2010.
The author is the chief value creator at Valulead Consulting, a leadership development & executive coaching firm.
Friday, December 05, 2008
How Cisco's CEO John Chambers is Turning the Tech Giant Socialist
To the fading strains of U2's "Beautiful Day" -- a projected slide of two executive types sitting lotus style and meditating got a few chuckles -- Chambers bounded to the front of the room. Looking out over the group, he paused before discussing Cisco's business. First, he wanted the analysts to know that, well, he felt their pain. "We went through a life-threatening experience in 2001," he said, referring to the good old days when a market bubble was just a tech-sector problem. "At first, there is disbelief, then understanding ... then how do you position yourself for the future?" Most companies come out of things like this stronger and more flexible, he assured the nervous crowd. "But if there is anything we can do in any way to help, we will be there for you."
He waited a beat, took a breath, and moved on. "Now, let's take a step back," he said -- and began talking about just how much stronger and more flexible Cisco is today. Sure, Cisco's stock has gotten hit in recent months along with everyone else's, but the company's underlying business remains robust. Back in 2001, Cisco went from being the most highly valued company in the world to a cautionary example of the excess of bubbles. Today, in the midst of an even wilder economic spiral, the company has a cushion of $26 billion in available cash, two dozen promising products in the pipeline -- each of which is targeting a minimum 40% market share -- plus an unprecedented forward-looking strategy to unleash what it's calling a "human network effect" both on and off the Cisco campus.
Cisco is the plumber of the technology world. Roughly three-quarters of its revenue comes from the routers, switches, and advanced network technologies that keep data moving "7/24," in Cisco vernacular. The company's outlook has been buoyed by the hunger for cheap and easy video -- not just from regular folks whiling away the online hours watching cats on a wheel, but from network spending and infrastructure upgrades for companies, a market that's expected to reach $50 billion by 2013. "It was a market transition we saw early," Chambers told me during one of several exclusive conversations in New York and San Jose.
And Chambers has greater ambitions, even now, in the midst of turmoil. Or, perhaps, especially now. He has been taking Cisco through a massive, radical, often bumpy reorganization. The goal is to spread the company's leadership and decision making far wider than any big company has attempted before, to working groups that currently involve 500 executives. This move, Chambers says, reflects a new philosophy about how business can best work in a networked world. "In 2001, we were like most high-tech companies, with one or two primary products that were really important to us," he explains. "All decisions came to the top 10 people in the company, and we drove things back down from there." Today, a network of councils and boards empowered to launch new businesses, plus an evolving set of Web 2.0 gizmos -- not to mention a new financial incentive system -- encourage executives to work together like never before. Pull back the tent flaps and Cisco citizens are blogging, vlogging, and virtualizing, using social-networking tools that they've made themselves and that, in many cases, far exceed the capabilities of the commercially available wikis, YouTubes, and Facebooks created by the kids up the road in Palo Alto.
The bumpy part -- and the eye-opener -- is that the leaders of business units formerly competing for power and resources now share responsibility for one another's success. What used to be "me" is now "we." The goal is to get more products to market faster, and Chambers crows at the results. "The boards and councils have been able to innovate with tremendous speed. Fifteen minutes and one week to get a [business] plan that used to take six months!" As storm clouds form for the rest of the business community, he says, "We're going to gain market share." Rain? What rain?
Thursday, December 04, 2008
Analyze any new business ideas or opportunities..!!!
1. Is it really any different from what is currently on the marketplace?
2. What wants and needs am I fulfilling?
3. Who will be buying my products or service offering?
4. How strong are my competitors?
5. Is the market for my idea growing or shrinking?
6. Do I have the time and energy to follow through?
7. Who is going to handle what?
8. How much initial capital is required?
9. How am I going to raise extra funding?
10. What is my maximum total loss including money, time and effort?
11. What is the potential for return on my investment?
12. How long is the time frame between initial investment, break even point and getting a return?
13. What is my exit strategy?
I believe that one should be very careful about how they invest their money. Very often I see people that invest a huge sum of money when the potential for return is low and the risks are high. In this scenario it is better to leave your money earning interest in the bank. The ideal business idea or opportunity for me, offers a potential for high return, with low initial investment. It focuses on a fast growing marketplace and there is something unique about the proposition. Alternatively another great form of investment is when the potential for return might not be high but the risks are low, little effort is required and the profits are almost guaranteed. I will only usually consider this type of investment if the payback is rapid and the amount of work required is low.
Let me give you an example based on personal experience on how not to do it. One of the first businesses I started was a packaging company. The market was served by established players and it was being eroded by cheaper imports. Britain's manufacturing base (my customers) was declining as the UK was slowly turning into a service economy. Margins were tight and my customers were willing to change suppliers at the drop of the hat.
Although we did end being successful, the amount of effort and sheer stubbornness required was out of all proportion to the money making potential. This is a classic business idea that should be avoided at all costs! I vowed when I sold this business that next time I was going to get into a fast growing market place where exactly the opposite was true. Your evaluation for investing in an opportunity might be different from mine, based on your propensity to risk. If you have a family to support than this reduces the amount of risk that you can take on. Your age, your sex and business background all greatly influence the types of opportunities that you can examine.
Before starting a new business, bear in mind that working as an employee has many advantages to being self employed. Your hours are fixed, the return of investment of time might be less but it is certainly guaranteed, at least for the short to medium term. Starting any new business especially for the first time is risky and demands extraordinary effort before any returns are forth coming. How do you analyze any new business ideas or opportunities?
Wednesday, December 03, 2008
10 Investing Books Recommended By Warren Buffet
by Arthur Levitt
Levitt, the Securities and Exchange Commission’s longest-serving chairman, supervised stock markets during the late 1990s dot-com boom. As working Americans poured billions into stocks and mutual funds, corporate America devised increasingly opaque strategies for hoarding most of the proceeds. Levitt reveals their tactics in plain language, then spells out how to intelligently invest in mutual funds and the stock market. His advice is aimed squarely at small, individual investors, as he explains how to look for clues of malfeasance in annual reports, understand press releases and draw more from reliable sources.
The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns
by John C. Bogle
Filled with in-depth insights and practical advice, The Little Book of Common Sense Investing will show you how to incorporate this proven investment strategy into your portfolio. It will also change the very way you think about investing. Successful investing is not easy. (It requires discipline and patience.) But it is simple. For it’s all about common sense.
Speculative Contagion: An Antidote for Speculative Epidemics
by Frank Martin
Speculative Contagion is an insider’s riveting real-time and real-money account of the inflating Bubble, accented with the genuine suspense to be found only in real-life drama. The epidemic of tech-driven lunacy gradually affected more and more feverish investors all too prone to be infected by the insidious absurdity of the times. In the midst of it all, Frank Martin found sanctuary in the treasure trove of history.
Benjamin Graham on Value Investing: Lessons from the Dean of Wall Street
by Janet Lowe
In this book, Janet Lowe presents a brief but interesting biography of value investor Benjamin Graham. The book also provides a nice overview of the history and theories behind modern value investing.
The Theory of Investment Value
by John Burr Williams
Though the book was first printed in 1938, it is still the most authoritative work on how to value financial assets. As Peter Bernstein has commented: “Williams combined original theoretical concepts with enlightening and entertaining commentary based on his own experiences in the rough-and-tumble world of investment.” Williams’ discovery was to project an estimate that offers intrinsic value and it is called the ‘Dividend Discount Model’ which is still used today by professional investors on the institutional side of markets.
Where Are the Customers’ Yachts? or A Good Hard Look at Wall Street
by Fred Schwed, Jr
Humorous and entertaining, this book exposes the folly and hypocrisy of Wall Street. The title refers to a story about a visitor to New York who admired the yachts of the bankers and brokers. Naively, he asked where all the customers’ yachts were? Of course, none of the customers could afford yachts, even though they dutifully followed the advice of their bankers and brokers. Full of wise contrarian advice and offering a true look at the world of investing, in which brokers get rich while their customers go broke, this book continues to open the eyes of investors to the reality of Wall Street.
The Intelligent Investor: A Book of Practical Counsel
by Benjamin Graham
Since it was first published in 1949, Graham’s investment guide has sold over a million copies and has been praised by such luminaries as Warren E. Buffet as “the best book on investing ever written.” The hallmark of Graham’s philosophy is not profit maximization but loss minimization. In this respect, The Intelligent Investor is a book for true investors, not speculators or day traders. He provides, “in a form suitable for the laymen, guidance in adoption and execution of an investment policy.” Where the speculator follows market trends, the investor uses discipline, research, and his analytical ability to make unpopular but sound investments in bargains relative to current asset value.
Paths to wealth through common stocks
by Philip Fisher
Paths to Wealth through Common Stocks contains one original concept after another, each designed to greatly improve the results of those who self-manage their investments — while helping those who rely on professional investment advice select the right advisor for their needs. In this book Fisher analyzes how worthwhile profits have been and will continue to be made through common stock ownership, and revealing why his method can increase profits while reducing risk. Many of the ideas found here may depart from conventional investment wisdom, but the impressive results produced by these concepts — which are still relevant in today’s market environment — will quickly remind you why Philip Fisher is considered one of the greatest investment minds of our time.
Bull: A History of the Boom and Bust
by Maggie Mahar
Citing studies by esteemed economists John Kenneth Galbraith and Charles Kindleberger, Mahar reminds readers that self-blinding euphoria is a regular feature of every bull market. In vivid detail, she documents the trends and outsized personalities that fueled this particular bull market, including the surge of leveraged buyouts of 1984-1987, the mania for junk bonds, falling short-term interest rates, the rush of individual investors into 401(k) retirement plans, the power (and appetites) of mutual funds and the media frenzy that lent an unlikely allure to quarterly corporate earnings reports. The book serves as a reminder that investors should employ skepticism towards information coming out of corporate management.
Security Analysis: Principles and Technique
by Ben Graham and Dave Dodd
Benjamin Graham’s revolutionary theories have influenced and inspired investors for nearly 70 years. First published in 1934, his Security Analysis is still considered to be the value investing bible for investors of every ilk. Yet, it is the second edition of that book, published in 1940 and long since out of print, that many experts–including Graham protégé Warren Buffet–consider to be the definitive edition.
Common Stocks and Uncommon Profits
by Philip A. Fisher
Regarded as one of the pioneers of modern investment theory, Philip A. Fisher’s investment principles are studied and used by contemporary finance professionals including Warren Buffett. Fisher was the first to consider a stock’s worth in terms of potential growth instead of just price trends and absolute value. His principles espouse identifying long-term growth stocks and their emerging value as opposed to choosing short-term trades for initial profit. First published in 1958, this investment classic is considered a must-read as the foundation for many of today’s popular investment beliefs
Labels: Business Lessons
Tuesday, December 02, 2008
Learning to Work with Social Networks
While many marketers want to use social networks as part of their strategies, they still have no clear list of best practices for the medium. Getting friends to spread a marketing message to each other is a great goal, but how is that best done?
A November article in Ad Age detailed efforts to use the connections between social network users. Paul Moore, director of insights at Yahoo!, found that targeting friends of a given sports fan led to more reach than targeting fans who did not know each other—even if the fan’s friends did not identify an interest in sports themselves.
“We got an additional 40% reach from people who would otherwise not be targeted by this ad because their sports-enthusiast behavior wasn’t apparent,” said Dr. Moore in the article.
Other approaches included targeting opponents in video games played on social networks.
Nearly three-quarters of retail executives surveyed in August by Zoomerang for SLI Systems said they thought social media would have a greater impact on their marketing goals in the near future.
But the lack of established social network ad and marketing strategies is, in part, why use of the medium is still relatively low.
The fact that it is a new area also helps account for the wide range of marketers’ reported social network usage: 16.9% of US marketers surveyed in May by PROMO magazine said they used social networks in their campaigns, compared with the 62% who said so in a July William Blair study.
Labels: social networking sites