Venturecapital

Q Considerhow venture capitalists invest

Q Discussthe contentsof businessplans
Q Comparedifferent possible investments

[ead-in
. lf youwerestartinga neMlcompany,
howcouldyoutry to raisemoney?
. Whatarethe mainwaysthatestablishedcompaniesraisecapital?

experienceffi8
Listeningl: Background
Listento ChrisSmart of AcaciaCapitalPartners,a venture capitalfirm, talking
about the investmentshis company makes.Answer the questions.
investin?
1 Whatf eldsdo AcaciaCapitalPartners
2 Whichindustriesdoeshe mentionthatthe partnershipdoesn'tinvestin?
3 Whathappened whenChrisSmartpreviously multi-disciplinary
rana non-specialized
fund.andwhv? Chris Smart

listening 2: Investingfor ten yearsre

getmostof theirmoneyfrom?Fillin the
1 WheredoesChrisSmartsayventurecapitalists
gaps.

...sotheyequa||yhavetoraisethatmoneyfroma1--,and
that in the mostgeneraltermsisthe insurance,it'sthe insuranceindustry,
so
2 and 3- Provide
-
4 lt isactually
to venturecapitalists. a verysmallpercentage,
so
-funding
they wi||putonetothreepercentoftheir5-,andnomore,
intoventurecapital.

2 ChrisSmartsays'they'vegot fve yearsto reap'- whatdoeshe meanby this?

3 Whatis (intheory)the ten-yearinvestmentcycle?
4 WhatdoesChrisSmartsay'actually happens'?
5 Whatshouldhappenat the endof thecycle?

new companies
listening 3: Managing ilre
1 HowdoesChrisSmartdescribe thesectorheworksin?
2 Whatdoeshe sayaboutthe managers in thissector?
3 Whatcanthe venturecapitalindustryprovideapartfromcapital?
4 do if theydo not havethe rightmanagerial
Whatshoulda start-up skillsin the
company?

Venturecapital Unit 15 77
 listening 4: Successes
andfailuresre
1 WhattermdoesChrisSmartusethatmeansknowing thatsomeinvestments willfail?
2 Howdoeshe describethe averagetechnologyventurecapitalportfolio?
3 Whichvervsuccessful
businessesdoeshe mention?
4 Whatarethe namesof theventurecapitalcompanies
thathelpedthem,andmade
'ohenomenalreturns'?

Discussion
. From what ChrisSmart says in the four extracts,what kind of skills do you
think you would need to be successfulin venture capitalism?
. Would you be good at it?

Reading:A businessplan
lf you are starting a business,you haveto get capitalfrom investors.ln order
to persuadethem to invest,you need, among other things, to write a business
plan. Here are ten standardelementsof a businessplan, in alphabeticalorder.
In what order do you think they should come in the actual plan?

- &ppendix or Appendices - curricuia vitae rcmpany it is, what the product or service is and
or resum*s cf the manag*r*, and any other rnrhatis speciai aboui it, urho the managersare,
necessarydocuments{e.9.promct!*nalmaterial* how rnuchmoney'/ou n*ed, and whai yau wiii
far y*ur products! use i{ forl

- eompetiticn - sp*cifiesthe esifting _ Financial analysis - gives details sf the

c#mpetitorsto your produ* or servire. revie-u;s
thelr slrengthsand vrreakn*sses. pr*dicts h*w
l?:eywill react when y*u enter the mark*t,
anaiysesthe possibilitieso{ futur* eomp*tit*rs
ent*ring the ::rarkei, and desuibes irow lhe
cornpanypians to overc*methem
"- ff*mpetitive advant*ge * describesthe
sustainablecampelitive advaniage the new
l:usil:esshas over ils ccmpetitarsand the
stret*Syf*r *raintaining it over the iong term {e.9.
management$irengths,innss*tive technology,
productfealures,prieing,etc.l
- flustacner pr*file - gives etetail*aklor,:tthe
*u*tomer$ycu plan to f;aterti] il}1ark*t$egments.
fig€,sex.ii{esiyle.inte:ests,gecgraphicloca{ion,
elc.l
** ffxeeqitivesumr*ary - a one-page ssmmary
*r cvervieiv *l iqrhatthe busine*s plan is a!:o:"ri
and wlrat ii wlll conlain {e.a"what scri cf
h'usiness's p*rformance{if it i* alreadycperating}.
and *xisting financeand assets,salesforecasts,
and prajectedfinancialstat*ments.It wiii specify
the miniffi.umlevei cf saies required ia achieve
the hreak-evenpoint, and make projecti*n* f*r
future revenue.It vrrill spe*ify current and lang-
terr:l financlng requirement$and give deiails
af previ*us investrnent.It will outline an *xit
strategy for investcrs.
- Implementation pla* - descrlhessatresand
r*arketing and operaticnal strategies,ineluding
rvhat pncing strategy will use and rnrhy,sales
-vou
and distributiCIn$trateEy,pr*motianai str*t*Ey
{pu}:liereiaticns,advenising,salesprornotions,
elc.!
** Management team * gives informati*n about
the founders.directar*.adviscrs,etc., and their
previcushusinessrecordand experlence,+nd
al:out the k*y pers*nn*l, or the human re$ources
plan if key s1*19
stiil ne*d ta be appoi*ted

78 Unit 15 Venture
capttal
 Finance

- ffiark*t opportunity - briefly describeswhat - Prodsct or servise - descnbesits features

the company cr businessplans t0 dCI,the target and the benefits fcr ihe flrstcmers, emphasizing
market, ils needs, cuffent products and ssrvices differences,impravementsand innovations
and why they ars inadequate,and how the new comparedwith other products or seivices on the
product or serviee 61isthe gap market

Vocabulary
1 Find words in the businessplan text that mean the following:
1 whatan organization cando betterthanits competitors
2 ableto continueovera periodof time
3 the salesbusinesses expectto achieve periodof time
in a particular
4 wheretotalcostsequaltotalincomefromsalesandthe companymakesneithera
profitnor a loss
5 the totalincomereceivedby a business beforeanyexpenses arepaid
6 an inveslor's planfor gettingtheirinvestment back and potentially a proft
realizing
7 the peoplewho establish a company or otherorganization
8 the peoplewho areemployed in an organization
2 Use the words from the previousexerciseto fill in the gaps below.
1 Company
- areoftenmuchtoo optimistic, high
andmakeunrealistically

lf a start-up's doesn'tappearto be- , e.g.

won't be interested.
becauseof ihe threatof newentrants,investors
It tookthreevearsfor our- to reachour-
but in the fourthyearwe f nallymadea proft.
Bigcompanies sometimes losesomeof theirbest- and
to start-ups,
too oncetheyhavebecomeesiablished.
thiscanhappento start-ups
An investor's by eventssuchasa
canbe saboiaged
fallingstockmarket.
suddenly

Role play: Investingin start-uPs

lmaginethat you are investmentmanagersfor a large financialinstitutionsuch
as a pensionfund or an insurancecompanythat has decidedto invest up to 2o/"
of its assetsin start-up companies.
It will not be difficult to find companiesin which to invest,becauseyou
regularlyreceivepropositionsfrom venture capitalfirms. But first, you want
to establisha strategy.Which industriesor industry sectorsdo you think you
should invest in? Which industrieshave the most potential?Which industries
or technologiesprobably presentthe fewest risks?lf you are going to invest in
companiesin your own country,in which industriesdoes it have expertiseor a
competitive advantage?
Choosethree of the sectorslisted on the next page' Preparea short
presentationof your strategy in small groups.Then changegroups and explain
your strategyto your colleagues,and then presentyour decisionsto the class.

Venturecapltal Unit 15 79
*T;:T

A CT scanner

A laboratory

.
: A model of DNA

Solar panels

computer andvideogametechnology A microprocessor

DNAsequencing andgeneticmedicine
fuel-efficient
aeroplane (BrE) (AmE)
or airplane technology
genetically
modifi ed food
high-speed railtransport
hybrid(petrolandelectric battery)automobile
technology
microprocessors using nanotechnology
mobiletelephone technology
nuclearenergy
nuclearmedical imaging
solarenergytechnology
windenergytechnology
other?

Writing
Write a 100-150word summaryof your group'sinvestmentdecisions.

80 Unit 15 \'entuie caprtal