9 Rules to deal with VENTURE CAPITALISTS

Well most of us have already defined and talked about what is venture capital and entrepreneurship, I have rather opted to highlight practical aspects venture capital and for those who would like to initiate a new business will get more benefits by reading this. This article was originally published here and talks what actually one should know when dealing with Venture Capitalists and the dos and don’ts before pursuing a new business or making changes in already exiting one. I have tried to present its summary to extract relevant points below,

#1: When Venture Capital is good and when it is bad.

“Is venture capital a good or bad thing? Well it is purely depends on the circumstances It is bad when you don’t need capital. An entrepreneur doesn’t like to lose its autonomy by selling part of his own company to raise capital so it’s a big deal when someone does it. Think before making this decision and let the right time come when you actually need to take this step. So it’s all about the time and situation which makes an entrepreneur’s decision bad good when it comes to raise capital.

# 2: Realizing the need of Venture Capital.

It is very important to realize what kind of business one has instantiated and whether it need venture funding or not? One of the examples might be of phone network (let’s say making acceptable-quality voice calls on the untamed Internet which was common back in 90s) which involves capital for getting critical mass. You need to need to know the level and scope before going for a big borrow or public funds because then again you might be taking huge risk at the very start. One can try to finance it on his own capability and available funds to gradually progress towards bigger funding opportunities

#3: Opt for it as late as possible.

Never go for taking venture capital when there is no need of it. It is also important to have a plan or homework ready before taking offers from VC. One may get offers from venture capital people may be because of the publicity or your initial success that attracted the VCs to offer their support but it is important to analyze the need of it first. Normally if one passed through his startup phase of a company, he may not need it but even then halt them for a period instead of rejecting and go with a new business plan or make some changes if you want to avail the opportunity.

#4: Knowing about VCs.

It is significant to research and invest some time to know about VCs you would like to go with or if they are coming themselves to offer you their support. There may be some of them who don’t have any idea about the business you do but still willing to invest may be because of your references and track record, but dealing with them would involve a risk factor sine they won’t be having any idea about the issues and problems of this business because of zero experience in that domain. So going for an experience VC and choosing a right one will work out. The right VC will himself take initiative and will monitor the progress and would be helpful to broad his investment if he will find it beneficial.

#5: Keep a check on VCs strategies and decisions

VC may cut down or sell their shares if he will see no progress and you are failing to convince them. It is better to understand this before getting a shock. So you need to have your performance check and also need to know how down or high will influence your VC to take any decision no matter positive or negative.

#6: Knowing VCs previous and future references.

A VC will always monitor and learn about your company before making an investment. It is equally important to do the same at your end. One has to know where the funding company has already invested and what their plans for future investment are? So getting a complete life history of it and about the people involved in it will prove a great asset for you

#7: Trust Factor

Trust factor is very important when dealing with the VCs. Opting for a firm that doest gem well with you or you may don’t like their support or anything else will always involves a risk of losing them eventually or that the fear factor will keep haunting you every time.

#8: Your VCs reputation can benefit your company.

Your customers might be attracted more because of the VCs involved in your business rather than for your own efforts. It is not happy to hear this but it is not bad at all. What all you need to do is to make your VCs happy and involved them in your activities to float positive vibes to those customers. A good and famous VCs having business experience that you are in are always better to be pampered since they know the markets and existing customers and so as customers know them, so if customers are coming because of them, you don’t want to make them unhappy.

#9: Dealing with Limited Partners.

Limited partners are those who may directly or indirectly purchase you stock shares form the VCs that have invested in your business. VCs do provide occasionally a chance to know about them by inviting some of its shared companies. This is very significant to know about them and to have good relations with them so that when VCs are going to distribute share to them, they can purchase your shares to further invest in your company and that will be possible only when you have good relations with them.

Naveed Nizar Ali
11k-3010

SUCCESS STORY OF A START-UP BUSINESS OR ENTREPRENEURSHIP

Hearing other entrepreneurs' small business success stories can often inspire and give great guidance to those who are just starting out. The success story is about Harvard Business School

Back some years ago in 19^th century, Harvard Business School marked an important milestone. For 50 years, the School had waded through the rough waters of analyzing, defining, and teaching and learning about entrepreneurship. The journey began when Professor Myles Mace (MBA 38) first offered a course to returning World War II veterans titled Management of Small Enterprises. The success story begins after fifty year when the entrepreneurship became a vital component of the MBA program. Through these fifty years the School has untold many extraordinary stories in this journey and this became the inspiration for Shaping the Waves: A History of Entrepreneurship at Harvard Business School (HBS Press).

In the mid of 1998, three young Harvard Business School graduates including two men and one woman turned down six figure salaries at the rise of big corporations.  By their ten-year reunion, their audacity had paid huge dividends. They'd made many millions of dollars, created hundreds of jobs—and left their mark on the world.

Crossing different interviews with highly successful entrepreneurs, Harvard Business School professors, and HBS alumni, The Intelligent Entrepreneur tells the compelling and instructive story of how these three young founders developed ideas, assembled teams, built ventures, and achieved their dreams. Because of what they teach you at Harvard Business School with the experience of a ferocious work and good timing, you can also be the next intelligent and successful entrepreneur.

REFERENCES:

1.       The Intelligent Entrepreneur: How Three Harvard Business School Graduates Learned the 10 Rules of Successful Entrepreneurship

2.       Teaching a 'Lean Startup' Strategy

3.       Harvard Business School Publisher

ENTREPRENEURSHIP & VENTURE CAPITAL

In the era of 21^st century, the Entrepreneurship has broader terms. At the earliest, dating from the eighteenth century, it was an economic term defining the process of bearing the risk of buying at certain prices and selling it at uncertain prices. Later on the ‘term’ is specifically defined by including the concept of bringing together the factors of production. Now think in your mind as this definition led to a question whether there was any unique entrepreneurial function or whether it was simply a form of management. Bringing down the concept of innovation, the new definition can be a process that involves market innovation, product innovation, factor innovation, and even organizational innovation. Later definitions described entrepreneurship as involving the creation of new enterprises and that the entrepreneur is the founder.

A person so called Entrepreneur with a brilliant idea can change ‘Everything’ in world. Referencing from Peter Killby once compared entrepreneurship to the imaginary animal, the Heffa-lump:

It is a large and important animal which has been hunted by many individuals using various ingenious trapping devices ... All who claim to have caught sight of him report that he is enormous, but they disagree on his particulari-ties. Not having explored his current habitat with sufficient care, some hunters have used as bait their own favorite dishes and have then tried to persuade people that what they caught was a Heffalump.

An entrepreneur is an individual who accepts financial risks and undertakes new financial ventures. The word derives from the French "entre" (to enter) and "prendre" (to take), and in a general sense applies to any person starting a new project or trying a new opportunity.

On the other side, Venture Capital is a form of ‘Capital Risk’. The Capital Risk is invested as shares (equity) rather than as a loan and the investor requires a higher "rate of return" to compensate him for his risk. Venture capital allows for long term and committed share capital to help the un-raised companies grow and succeed. If an entrepreneur is looking to start-up, expand, buy-into a business, buy-out a business in which he works, turnaround or revitalize a company, venture capital could help do this. Obtaining venture capital is substantially different from raising debt or a loan from a lender.

In the last few years the entrepreneurial class in Pakistan has been on the rise. This trend has been recognized by the media both in Pakistan and abroad as well as by quite a few bloggers. The interesting thing is that the trend of rising entrepreneurship continues despite of the growing political challenges and unstable business environment.

REFERENCES:

1. Emerging Entrepreneurship in Pakistan
2. Defining Entrepreneurship by Paul Di-Masi
3. Venture Capital by  Entrepreneurship Law Editorial Team

Enterpreneurship - An Art or Just a Skill!

Entrepreneurship

Being an Entrepreneur is not just a skill or talent but an art and also an intention to do something of your own. It’s not just some funding or good contacts that could create Entrepreneurs instead it’s a spirit that could be built into students during their academics. Take an example from MIT, we have seen and read that mostly MIT grads come out and go for their own startups instead of working for any firm.  Does this mean that only the students with entrepreneurship interests get admissions in MIT? Answer is no, it’s more related to what has been taught to them and how they are groomed for their professional career.

We can’t say that individuals with Entrepreneurship skills are just some extra ordinary people, of course they are human and created like we are do but at the same time they are sharp and intelligent enough who keep a close eye on global IT Business, what is currently happening, the kind of software product that should be rolled out into the software market to run the show for at least next 5 to 10 years.

Entrepreneurs not just think of a business but a complete business model of how they would start, how and what kind of resources would be required, till what time or duration they need to fly light to establish at least a stable setup.

Today, if we look around us, we can see hundreds of new names opened and even doing well with their business. Each day while at our work places we get to know an emergence of one or more new firm, a big question that really comes to our mind is, how these people are getting the business, finding and managing the required resources, continuously hiring and foremost still growing.

The point to note is most of the Enterpreneurs play safe and they are good enough to get and create the exact required resources around them. Since day one, they work and struggle for something of their own with a clear vision of what they intend to start. They either develop an organic fund by doing some offshore consultancies or other part time jobs or take some fast cash loans from any financial institutions if they are sure enough that they could return that in a timely manner.

Venture Capitalist:

Since last three to four years another concept that has really became quite common is of venture capitalism where some already established individuals or companies invest the required cost for any startup and become one of the stake holders. This model has allowed many new names to introduce themselves within the market with a proper setup.

After developing or creating some initial modules, usually, entrepreneurs look for venture capitalists to get some extra funding from them so that they could proceed with the remaining planned scoped out features and at the same time expanding the operations. Some individuals have just gone into Ventures to expand the geography of the firm to foreign regions to have presence other than Pakistan as well.

There companies and some big fishes within the market who are themselves a kind of pool of seven to eight different firms of the same domain or product line. Some of the examples are Tyler Technologies, that gets and outsource the business from Microsoft, SAP, Oracle and some other big names to some local vendors here in Pakistan. Dena Japan who last year acquired Game View Studios as Dena itself is a pool of companies who only developers Mobil Games and social networking Apps.

There are individual people who run their own firms and at the same time invest their profits to some other firm to create a second or third label for them. One of the examples of this particular Model is Secret builders, a silicon valley based firm that has some specific stake in one of local firms here in Karachi and also outsource their projects to them.

Success Stories:

There are many success stories if we see around us, one of them is MIXIT that started with only five individuals, took a very nervous start, main stake holders never wanted this to be started in Pakistan and wanted to give the opportunity to India but it was one Man, Mr. Yusuf Jan, who brought the Business intention here, seated the resources at his own home. Initially he paid salaries of the resources from his own pocket by teaching at different academic institutions and doing different consultancies. At one time, the setup seemed to be abandoned as they were struggling to get any clients but suddenly they got a US based client which actually triggered them. Now they have been acquired by a UK based firm known as PATS.

Game View studios just started back in 2010 with setup only in Lahore, today within a time of only 2 years, they are looking for a head count of around 1000 with offices in Lahore and Karachi and recruiting the resources with one of the most lucrative offers in town. It was just last year when a strategic acquisition turned the table for them and they became of the Giants in Karachi now.

Usman Rafique Zuberi.
Roll No: 11k-3003

Entrepreneurship, Skill or Luck ?

What makes entrepreneurs successful?  Is it skill or luck?   Many argue that an important component of entrepreneurship is the willingness of the venturesome to ‘assume’ or ‘insure’ the doubtful and timid by guaranteeing to the latter a specified income in return for an assignment of the actual results.” In this view, Luck is a big determinant of entrepreneurial success. It is the only determinant of entrepreneurial success: in their model entrepreneurs are simply less risk averse individuals who are willing to guarantee workers’ wages and bear residual risk.  Schumpeter argues just the opposite, claiming that “the entrepreneur is never the risk bearer,” but rather an innovator, one who discovers new production processes, finds new markets, creates new types of organizations, or introduces new products. Entrepreneurial success, in this view, flows from innovative skill.  Only suppliers of capital bear risk.

By examining the experience of serial entrepreneurs and the venture capitalists that fund them, we are able to provide insights into how important each is and what type of skill each possesses.  It is indicated that skill is an important determinant of success for entrepreneurial startups.  Successful serial entrepreneurs are more likely to replicate the success of their past companies than either single venture entrepreneurs or serial entrepreneurs who failed in their prior venture.  

More experienced venture capital firms are also shown to have higher success rates on their investments.  However, this is isolated to first time entrepreneurs and those who previously failed.  When experienced and inexperienced venture capital firms invest in entrepreneurs with a track record of success, there is no performance differential.  This evidence would seem to suggest that prior success is a signal of quality or that venture capital firms add little value to talented, successful entrepreneurs.  If prior success were pure luck, we would not see this pattern.   

While they are more likely to be successful, serial entrepreneurs are not able to extract all of the value from their superior ability.  We find that successful serial entrepreneurs do not achieve higher valuations than do other entrepreneurs.

This leads to higher deal returns for venture capitalists who invest in companies started by successful serial entrepreneurs.  Investing in serial entrepreneurs also leads to higher rates of return of the funds themselves.  

Waseem Chishti

11k-3033

Entrepreneurship and Venture Capital

EntrepreneurshipEnterpreneurs are the people with an idea to start a new company or which have business plan. Entrepreneurship is thus being taken as a process of discovering, evaluating and exploiting opportunities and create value. Entrepreneurial success is simply a function of the ability of an entrepreneur to see these opportunities in the marketplace, initiate change (or take advantage of change) and create value through solutions. A successful enterprenuel venture creates substantial wealth. Entrepreneurship has very high risk because of innovative ideas, the idea is totally based on initial market research and no one ensure that the plan would be successful or not. However, if idea got successful then it can grow rapidly and receives high returns of investment and profits.

Entrepreneurism has been found to be a vital part of the economy of the country. It helps in creation of new jobs, development of innovation and research, providing better way of doing task, creating wealth for individuals seeking business opportunities. Therefore, promoting entrepreneurship and enhancing the entrepreneurial dynamic of each country should be an integral element of any government’s commitment to boosting economic well being.

The most important factor under entrepreneurism is the level of perceived opportunity. After opportunity second important factor is motivation. If the person can't find enough motivation by the opportunity, then business will not be pursued. In other factors, financing is also the most important. Many business fails on start ups because of cash flows and resources. Venture Capital firm may help in financing that automatically help in increasing motivation level, because one level of motivation also increased by availibility of resources.

Entrepreneurship is an opportunity that can provide new and interesting challenges. The new challenges can become very rewarding as you work through them, not only financially, but on a personal level as well. It is very rewarding to accomplish something that others do not, and entrepreneurism can provide this chance. This job satisfaction is important to your self-worth.

Venture Capital:

As you know, new businesses called start-ups, are all private companies that aren't allowed to sell stocks or shares to the general public they have to find other ways of raising capital. Some very small companies are able to operate on money their founders have previously saved, but larger companies need to get capital from somewhere else. As everybody know, banks are usually risk-averse. this means they are unwilling to lend to new companies where there's a danger that they won't get their money back. But there are firms that specialize in finding funds for new enterprises called venture capital. Venture capital also called risk capital or start-up capital.

Venture capital means to provide money by investment companies known as venture capital firm for start up firms and small businesses that are seeking funds to cover operational expenses until profitability is achieved. The firm may also focus on rescuing established firms that are in financial trouble but demonstrate some potential for become profitable again after some retooling. It operate for the sole function of handling investments in business ventures that may be considered high risk. Although new companies present a high level of risk, they also have the potential for rapid growth and consequently high profits if the new business is successful.

A venture capital may be a small operation that works with a limited amount of seed money supplied by a few investors. In other instances, an investment company of this type may include hundreds of investors and have billions of dollar at its command. However, the size of the firm is not always indicative of the type of venture capital deals that the company will take on. A large venture capital firm may choose to devote a portion of its attention to start-ups along with funding major deals involving the restructuring and renewal of well established international business entities.

Some venture capital or risk capital companies use their own funds to lend money to companies, but most of them raise capital from other financial institutions, some rich people, who banks call high net worth individuals, and who we call angels or angel investors also invest in start-ups.

What sets a venture capital firm apart from other funding sources is that venture capitalists do not tend to be passive in their approach to the task. While many funding agencies will simply loan the money and expect nothing more than repayment according to terms, the venture capital firm will take an active interest in the setup, operation, marketing, distribution, and sales efforts of the funded company. Generally, the contract between the venture capital firm and the client receiving funding will specify the rights and privileges of the firm in regard to involvement in the day to day functions of the client.

One additional benefit the a venture capital firm often brings to the table is the ability to create new vendor relationships between clients of the firm. For example, Client A may manufacture an outstanding product, but does not have adequate distribution facilities. client B possesses excellent distribution technology and facilities and can take over that function at a price that will cut expenses for Client A. The venture capital firm introduces the two clients, who are then able to strike a deal. As a result, both clients experience a healthier bottom line. at the some time, the venture capital firm benefits from the healthier financial outlook of the two clients.

Success Story of Venture Capital and Entrepreneurship

Entrepreneurs looking for capital and ventures capitalists looking for good ideas are natural partners; but not necessarily loving ones. Although entrepreneurs and venture capitalists would appear to be (as they say) a match made in heaven, there is a natural tension that arises between them. Entrepreneurs want control over and maximum benefit from their ideas while venture capitalists want grab as much of the gold as they can for offering to put up the money. Entrepreneurs often think that venture capitalists get too much equity for fronting the money and venture capitalists often believe they get too little. However uncomfortable and adversarial that relationship, entrepreneurs need venture capitalists and venture capitalists need entrepreneurs. Ironically, successful entrepreneurs often become venture capitalists themselves.

Google is one of the most powerful search engine with more than fifty percent of the market share. The founders of google are Larry Page and Sergey Brin. It was started in 1996-97 in Stanford University when both of them were students there. They received startup venture capital of $100,000 in 1998 from Andy Bechtolsheim. In 1999, they received $25 Million in venture capital. This further bolstered their growth. The growth in terms of employees, search queries & revenues was always increasing. The primary focus has always been on search.

Over 100 Million searches were being conducted daily by 2000. They started their advertising programs adwords and adsense in 2002-03. They went public in 2004 with an initial public offering in USA and raised $1.67 Billion. They formed major partnerships with NASA & AOL in 2005. The google stock was added to S&P 500 index in 2006. The company employment crossed 10,000 employees in 2007. The graph of google has only been going up. Let us know more about the amazing story of this company.

Google, Inc. is listed on NASDAQ with symbol GOOG. The current share price is $444 as on September 6, 2008. Also on this date the market cap is around $140 Billion. Eric Schmidt is the CEO & Chairman. Larry Page remains co-founder and president, products and Sergey Brin remains co-founder and president, technology. The stock has been a front runner among tech stocks. But they have never given a dividend to shareholders.

References:
http://en.wikipedia.org/wiki/Venture_capital
http://www.quickmba.com/entre/definition/
http://www.gregwatson.com/entrepreneurship-definition/
http://en.wikipedia.org/wiki/Entrepreneurshipwww.oecd.org/dataoecd/44/50/44069838.pdf
http://www.oecd.org/dataoecd/44/50/44069838.pdf
http://www.slideshare.net/webgoddesscathy/cibc-presents-entrepreneurship-101-different-types-of-entrepreneurship-presentation

Success Story of a Start-Up Business or Entrepreneur

Success Story of a Start-Up Business or Entrepreneur

In current computer age with the emerging computer technologies many web services have come forth, of which Facebook has emerged as a big name. Facebook is a social networking service. Facebook users can create profiles with photos, lists of personal interests, contact information, and other personal information. Through it users can communicate and share with friends and other users through private or public messages and chat features.

Facebook was founded by Mark Zuckerberg with his college fellows Eduardo Saverin (business aspects), Dustin Moskovitz (programmer), Andrew McCollum (graphic artist), and Chris Hughes. The idea started when Mark Zuckerberg wrote Facemash, the predecessor to Facebook, on October 28, 2003, while attending Harvard as a sophomore. According to The Harvard Crimson, the site used photos, placing two next to each other at a time and asking users to choose the 'hotter' person". For this, Zuckerberg hacked into the protected areas of Harvard's computer network and copied the private ID images. Facemash was shut down a few days later by the Harvard administration. Zuckerberg was charged by the administration with breach of security but soon the charges were dropped. Zuckerberg expanded on this initial project by creating a study tool near an art history final, by uploading 500 Augustan images and a comment section to a website. He opened the site up to his classmates, and people started sharing their notes.

Zuckerberg launched “The Facebook” on February 4, 2004. In the intervening years, he had raised $37.7 million from venture capitalists and transformed his web site into a certified social website. In mid-2004 the entrepreneur Sean Parker became the company's president as then the company was incorporated. In summer 2004, it received its first investment from PayPal co-founder Peter Thiel. The company dropped “The” from its name after purchasing the domain name facebook.com in 2005. Facebook launched a high-school version in September 2005

With the upcoming new features the site often failed to satisfy users on privacy issues. For this purpose it now includes appropriate customizable privacy features. Ups and downs were faced by the founders, the most marked one in 2006 when the site was about to be sold but then they revitalized the ideas and carried on with fresh strong efforts. Since then, more than 3,200 new applications have sprung up on the site, a number that is growing by about 180 a week. Those offerings have made Facebook a fully functioning social hub.

Contributed By: Mohammad Ali Zia

Roll#: 11K – 3008

MS – SPM (SPRING – 2012),

Academic Writing (ACAD)