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Disadvantages of Venture Funding

Almost all entrepreneurs think of venture capitalists when they are planning to expand their business or start a new one. For the past few years, venture capitalists have been the main source of funding for thousands of business, technology, Internet and biotechnology companies.

However, there are some problems associated with VC funding. A major limitation of VC funding is that many venture capital firms are very industry specific. Rather than go solely by the merits of the business plan, some VC funding companies are guided by the nature of the company.

Another limitation of VC funding is that venture capitalists often demand to be on the board of directors of the company that they are funding. Often this disintegrates into the venture capitalist acting as the CEO. Some business owners complain that as soon as VC funding rolls into the company, the role of the founder shifts from critical company building functions to preparing reports, attending meeting and writing memos.

In addition some business owners say that as the first dollars of VC funding rolls into a company, venture capitalists begin to get meddlesome and start trying to call all the shots for running the business.

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VC funding also brings with it tremendous pressure to create profits quickly. This could lead the founder to make some bad judgment calls or even launch products too early or into the wrong markets.

Some of the terms accompanying VC funding and the demands made by some of the venture capitalists can lead to eroding of team spirit and loss of commitment by employees to the products.

Most venture capitalists get their money from various institutional and pension fund investors. Like other investors, venture capitalists also go through a process of raising funds. They do this by raising funds from foundations, endowment funds and retirement funds. As venture capitalists are investing other people’s money they often tend to try and be in a position of control in the company. As a result most venture capitalist firms demand a seat on the board of directors and stock options as part of VC funding.

Despite the numerous disadvantages surrounding VC funding for many business owners it is the only source of funds. Venture capitalists often offer VC funding up to several billion dollars. For some entrepreneurs VC funding is the only option by which the entrepreneur can realize his or her dream.

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Rogue CFO Chris Benjamin has put together an audio course, 6.5 hours of content in length, detailing everything an entrepreneur and startup company would need to know about funding their company. He discusses venture capital, angel investors, private equity, debt equity, as well as several other options not often known. AND as a bonus, this course comes with a coupon for a substantial discount on all future seminars he offers AND a list of over 240 resources – angels, venture capitalists, and other resources of interest to startup and small businesses.
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Set Up China Joint Venture in ShenZhen

Shenzhen is one of the best choices for doing business in China. Situated in the Pearl River Delta, Shenzhen is the first Special Economic Zone since China carried out reform and open-door policy 30 years ago. Shenzhen has an area of 1953 square km’s and a population of more than 10 million. Shenzhen is the best city both for living and working in China, as well as the fastest growing city in the world. In Shenzhen you can enjoy the sound infrastructure and the intensive industrial chain for trading, manufacturing and value investment. Since Shenzhen is bordering Hong Kong, you can also take great advantage and opportunity from the “one country, two systems” policy.

 

Introduction of Joint Venture (JV)

A Joint Venture is a business arrangement in which the participants create a new business entity or official contractual relationship and share investment and operation expenses, management responsibilities, and profits and losses.

The Chinese authorities encourage foreign investors to use this form of company in order to obtain exposure to advanced technology and new management skills. In return, foreign investors can enjoy low labour costs, low production costs and a potentially large Chinese market share. Joint Ventures are sometimes the only way to register in China if a certain business activity is still controlled by the government. e.g. Restaurants, Bars, Building and Construction, Car Production, Cosmetics etc. There are 2 types of Joint Venture:

1- EJV (Equity Joint Venture)

Equity joint ventures are the second most common manner in which foreign companies enter the China market and the preferred manner for cooperation where the Chinese government and Chinese businesses are concerned. Joint ventures are usually established to exploit the market knowledge, preferential market treatment, and manufacturing capability of the Chinese side along with the technology, manufacturing know-how, and marketing experience of the foreign partner.

Normally operation of a joint venture is limited to a fixed period of time from thirty to fifty years. In some cases an unlimited period of operation can be approved, especially when the transfer of advanced technology is involved. Profit and risk sharing in a joint venture are proportionate to the equity of each partner in the joint venture, except in cases of a breach of the joint venture contract.

Share holdings in a joint venture are usually non-negotiable and cannot be transferred without approval from the Chinese government. Investors are restricted from withdrawing registered capital during the live of the joint venture contract. Regulations surrounding the transfer of shares with only the approval of the board of directors and without approval from government authorities will probably evolve over time as the size and number of international joint ventures grow.

There are specific requirements for the management structure of a joint venture but either party can hold the position as chairman of the board of directors. A minimum of 25% of the capital must be contributed by the foreign partner(s). There is no minimum investment for the Chinese partner(s).

It is preferable that foreign exchange accounts are balanced in order to remit profits abroad so that the repatriated foreign exchange is offset by exports from the joint venture. With the elimination of foreign exchange certificates and the further opening of the China market, this requirement is becoming more and more relaxed.

The permissible debt to equity ratio of a joint venture is regulated depending on the size of the joint venture. In situations where the sum of debt and equity is less than US$ 3 million, equity must constitute 70% of the total investment. In joint ventures where the sum of the debt and equity is more than US$ 3 million but less than US$ 10 million, equity must constitute at least half of the total investment. In cases where the sum of the debt and equity is more than US$ 10 million but less than US$ 30 million, 40% of the total investment must be in the form of equity. When the total investment exceeds US$ 30 million, at least a third of the sum of the debt and equity must be equity.

Equity can include cash, buildings, equipment, materials, intellectual property rights, and land-use rights but cannot include labor. The value of any equipment, materials, intellectual property rights, or land-use rights must be approved by government authorities before the joint venture can be approved.

After a joint venture is registered, the entity is considered a Chinese legal entity and must abide by all Chinese laws. As a Chinese legal entity, a joint venture is free to hire Chinese nationals without the interference from government employment industries as long as they abide by Chinese labor law. Joint ventures are also able to purchase land and build their own buildings, privileges prevented to representative offices.

2- CJV (Cooperative Joint Venture)

In a Sino-Foreign Cooperative Venture (also known as Contractual Joint Venture), the parties involved may operate as separate legal entities and bear liabilities independently rather than as a single entity. A cooperative venture may also be registered as a limited liability entity resembling an equity joint venture in operation, structure, and status as a Chinese legal entity.

There is no minimum foreign contribution required to initiate a cooperative venture, allowing a foreign company to take part in an enterprise where they preferred to remain a minor shareholder. The contributions made by the investors are not required to be expressed in a monetary value and can include excluded in the equity joint venture process can be contributed such as labor, resources, and services. Profits in a cooperative venture are divided according to the terms of the cooperative venture contract rather than by investment share, allowing a more flexible schedule for return on investment in cases where one investor provides cash while the other party’s investment is primarily in kind.

Greater flexibility in the structuring of a cooperative venture is also permissible including the structure of the organization, management, and assets. There is no term for unlimited terms in cooperative ventures, but also no provisions for the term of the duration. The term of the cooperative venture contract may be renewed subject to the consent of the parties involved and approval from the examination and approval authorities. The foreign investor is permitted to withdraw their registered capital or a portion thereof from the cooperative venture during the duration of the cooperative venture contract.

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Because of the unique privileges and added features offered to the foreign party in a cooperative venture, trade unions must be allowed to represent the employees in employment matters to protect the interests of the employees.

KEY ISSUES REGARDING A JOINT VENTURE

Nature of JV Project

(A) The principal differences between an EJV and a CJV can be simply summarised as follows:

- For an EJV:

Each party must make cash or permitted contributions in proportion to its subscribed percentage of the EJV’s registered capital. Profit must be distributed strictly in accordance with the parties’ respective percentage shareholding of the registered capital of the EJV. Upon dissolution of the EJV at the expiry of the term of operation, the EJV’s net assets are to be distributed to each party in accordance with its respective shareholding of the EJV’s registered capital.

- For a CJV:

A party (typically, but not always, the Chinese party) may contribute non-cash intangibles in the form of “cooperative conditions”. Such “cooperative conditions” may consist of market access rights, rights to use buildings or office space owned or leased by the party that are not subject to clear valuation. In exchange for such “cooperative conditions”, the party is entitled to participate in the distributable earnings of the CJV. Profit sharing in a CJV need not be made strictly in accordance with the parties’ respective percentage shareholding of the registered capital of the CJV but can be made in accordance with the agreement of the parties (e.g. the Chinese party may be entitled to a fixed profit share with the balance to be distributed to the foreign party, or the parties may agree on a multi-tiered profit-sharing arrangement that permits the foreign party to recover an amount equal to its capital investment on a priority basis, following which the profit split will be changed, etc.). Upon dissolution of the CJV at the expiry of the term of operation, the CJV’s net assets may be transferred to the Chinese party without compensation (thus operating in many respects as a BOT project) so long as the foreign party has been able to recoup its capital contribution during the term of the CJV. Such recoupment typically is funded by excess cash flow generated by accelerated depreciation of the CJV’s assets. Such arrangement requires approval of relevant finance and tax authorities in China. Note that this capital recoupment is separate and distinct from possible priority rights to receive after-tax net profit distributions as outlined in the bullet point above.

Capitalisation of JV

(A) The concepts of authorised and issued capital are not used in connection with Sino-foreign joint ventures. Instead, the concepts of “registered capital” and “total investment” are employed. Under applicable PRC law, registered capital is defined as the total amount of capital contributions subscribed to by the parties and registered with the Chinese authorities. Thus, the term “registered capital” refers to the parties’ equity in the venture. The concept of “total investment”, on the other hand, includes both registered capital and external borrowings.

(B) Pursuant to regulations promulgated by the SAIC, certain minimum equity requirements are imposed on joint ventures. These are:

Minimum Equity

Total Investment

(% of Total Investment)

<= US Million

70%

US – US Million

50% or US.1 Million (whichever is higher)

US – 30 Million

40% or US Million (whichever is higher)

>US Million

33.3% or US Million (whichever is higher)

PRC laws governing joint ventures require that the foreign party contribute no less than 25% of the registered capital.

(C) The capital to be injected by the parties constituting their capital contribution may take a variety of forms including cash, machinery, equipment and intangible property, such as proprietary technology, trademarks and other industrial property rights. Pursuant to a circular promulgated by SAFE and effective as of 1 April 2003, subject to SAFE’s approval, a foreign party may also use the assets obtained by way of early recoupment of investment, liquidation, share transferring, capital reduction etc. from FIEs it has previously invested in. In addition, the Chinese side may contribute the right to use a site and count this as part of its contribution.

There are, however, certain restrictions on in kind contribution by a party. For example, the technology contributed as registered capital by a party generally should not exceed 20% of the total registered capital (but this can be increased with approval for certain encouraged projects) or 50% of an individual investor’s capital contribution. The issue of the appropriate valuation of in kind contribution can often be a major stumbling block in joint venture negotiations.

Once the joint venture contract is approved, the parties must inject their subscribed registered capital amounts within the time limits set out in the contract. If paid in one lump sum, the registered capital contributions must be made within six (6) months of the issuance of the business license for the joint venture. If the subscribed registered capital is to be injected in instalments, the first instalments, which must not be less than 15% of the total subscribed registered capital, must be made within three (3) months following issuance of the business license. The balance is to be contributed in accordance with a schedule agreed by the parties, provided that the parties must complete all such contributions within the following time limits (calculated from date of issuance of the business license) depending on the total amount of registered capital of the joint venture company:

Registered Capital (US$ M)

Contribution Time Limit

<=0.5

1 year

>0.5 but <=1.0

1.5 years

>1.0 but <=3.0

2 years

>3.0 but <=10.0

3 years

>10.0

subject to approval with reference to actual condition

(D) Chinese law permits joint ventures to borrow funds from either Chinese or foreign banks in excess of the parties’ capital contributions. Shareholder loans from the foreign party are also permitted. (Chinese partners likely will not have a sufficiently broad scope of business to permit them to provide shareholders loans.) All such loans should be registered with SAFE and should not exceed the difference between the registered capital amount and the total investment amount.

Transfers of Equity Interests in Joint Ventures

If a party proposes to transfer all or part of its interest in the registered capital of the joint venture company to a third party, then each other party has a pre-emptive right to purchase the equity interest proposed to be transferred. As an equity transfer also requires amendment of the joint venture contract and articles of association, which in turns requires the signature of each party, each party in effect holds absolute consent rights to any transfer generally. All transfers of registered capital additionally require a unanimous approval of the joint venture company board of directors and approval by the original government authority which approved the joint venture contract and articles of association.

Off-shore Structures

(A) Offshore Structures

The entity to be used by the foreign investor as the offshore investment holding company (“OHC”) for its investment in the EJV will be determined by a number of factors. One of the main considerations driving choice of OHC is tax-efficiency. In this respect the foreign party needs to ascertain whether there is a double tax treaty (“DTT”) covering the types of revenue streams that are likely to be coming out of the EJV as between the PRC and the jurisdiction where the OHC is established. DTTs generally cover loan interest, dividends and distributions, income taxes, royalties and capital gains. The tax treatment of dividends tend to be less important in terms of determining the location of the OHC because, at present, China exempts dividends by FIEs to their foreign shareholders from withholding and other taxes (although this could change as the post-WTO levelling of the playing field progresses, as Chinese parties do not benefit from such an exemption). There are proprietary software programs for determining the most tax-efficient jurisdiction under the applicable DTTs, based on a specific set of input parameters which you provide.

Based on past experience, popular DTTs for investment in China are the PRC-Mauritius DTT (but note the provisions on capital gains do not apply to FIEs whose principal assets comprise real estate assets), PRC-Netherlands and PRC-Malaysia. If you are using a Labuan company, note that certain countries have objected to Labuan companies getting Malaysian DTT benefits in the country of investment because it is a tax haven within Malaysia, although China does not appear to have done so to date.

A number of industries in China, notably the telecommunications, fund management, banking, venture capital and many others require foreign investors to meet certain qualification requirements which may preclude using a special purpose vehicle (“SPV”) as the OHC. This needs to be considered on an industry-by-industry, case by case basis. It may be possible, in some cases, such as under the Foreign Invested Venture Investment Enterprise Administrative Regulations to use an affiliated entity to satisfy the qualification requirements where there is an express legal basis for doing so, whilst investing through an SPV located in a tax-efficient jurisdiction.

Another possibility to consider, when establishing an EJV in “special industries” with foreign investor qualification requirements, is whether the industry regulator would accept the use of an SPV backed up by a parent company guarantee of the SPV’s obligations in relation to the EJV or similar arrangement, based on an agreement negotiated with the regulator. Again there are no hard and fast rules as to what may or may not be possible as it depends on the position taken by the regulator. You should make telephone enquires to confirm.

Tax structuring of the foreign party’s investment in an FIE does not, however, stop at the OHC level, as you also need to consider (where applicable) the tax implications of repatriating funds from the OHC to the foreign party’s home jurisdiction, and the DTTs (if any) between OHC jurisdiction and the foreign investor’s home jurisdiction.

(B) Tax Havens as OHCs

Many foreign investors tend to favour the use of tax haven jurisdictions, typically the British Virgin Islands (“BVI”), the Cayman Islands and so forth as OHCs for China investments.

From the foreign investor perspective the main advantage is low or zero rates of tax on funds once they reach the tax haven or on disposals of shares in OHCs located in the tax haven. On the other hand, tax havens do not have any DTTs to reduce the tax withheld at the China end, so the tax required to be withheld in China before a remittance of funds out by EJV (other than for dividends) by way of payment of loan interest, royalties etc. will be the maximum applicable rate under Chinese law and policy at the time, thus giving a substantially reduced amount on arrival at the tax haven.

The location of OHCs, as can be seen from the above, is not always straightforward and is a decision that will be determined by a large number of variables on a case-by-case basis. Often foreign investors will make the decision based on internal policies or on the basis of advice from their own in-house or external tax advisers.

Miscellaneous

(A) Under PRC law, joint venture companies have a fixed term of operation. Currently, the most common term of operation approved is fifty (50) years. This term can be extended with the consent of all parties and approval of the relevant government authorities. In some instances, particularly in BOT-like CJVs, the term of operation agreed by the Chinese party and approved by the relevant government authorities will be much shorter.

(B) Depending on the nature of the operations of the proposed joint venture company, certain additional government approvals, permits or licenses may be required, e.g., sanitation certificates, environmental permits, production approvals, export licenses, value-added telecom services operating licenses, etc. Certain other legal and practical considerations relating to the establishment of a Sino-foreign joint venture company are set out in the notes at the end of the template Joint Venture Contract

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Thriving Trend of Venture Capitalist

To start a new business you require money to get it off to the ground. You need money to rent or purchase the space for business, infrastructure, manpower and other resources. You need to think of a way out to get money to start your business. There are a number of alternative methods to fund growth. Venture Capital is a way to get money to start your business. Venture capitalists engender revenues by financing start-up businesses that have high potential growth. With venture capital you can sometimes acquire enormous capital amount, and this amount can help businesses that want to grow very quickly.

Venture capital is essential to any business. They help the business in emerging and earning profits. Venture capitalists always lookout for opportunities with the potential of long-term returns. Venture capitalists do not provide loan, they invest in a business with a concept they believe in and expect to see long-term gains from their investment. If that certain company becomes profitable, venture capitalists will receive their share, as is the case with losses.

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Example: At the WWDC event in San Francisco, Apple CEO Steve Jobs took the stage for his keynote address. During it Job said There have been over five billion app downloads so far and Apple has paid out over billion to app developers (their 70% cut of all sales).

Here are some pros and cons:

Pros:

• Venture capitalist can provide large sum of equity finance
• They are able to bring wealth and expertise to your company
• Easier to secure future funding from other sources
• The business is not obligated to repay the money

Cons:

• The process is lengthy and complex, needs detailed business plan, financial projections etc.
• Venture capitalists are typically more sophisticated and may drive a harder bargain.
• Venture capitalists are more likely to be interested in taking control of the company if the management is unable to drive the business.

Venture capital’s advantages and disadvantages are not for everyone. Before you decide that venture capital is right for you, make sure that you know all of the pros and cons.

Inclusively, venture capital can offer a valuable source of funding for emerging companies. Experts usually suggest that it be observed as one of a number of potential sources of funding and be used in combination with liability funding at any time possible.

Venture Funds for Capital Investments In Building Indian Consumer Brands

Venture Funds, Venture Partnership, Private Treaties

If you are searching to get funds in your business subsequently venture funds can be a very good resource, because company of which will be able to secure venture capital funds, in addition to the financial resources, may be given services associated with business services, operations services, our resources and other resources on the venture capital firm. In order to secure venture funds, your company is going to solution venture capital firms that has a business plan of which packages out and about just what exactly that they prefer to accomplish, precisely how immediately your business is definitely anticipated to mature along with the projected profits for your forthcoming many years. Whenever Venture Capital Corporation is definitely convinced it’ll spend money inside company.   The primary target of the venture capital firms will be to come up with a superior fee associated with return by investing venture capital around usually small or perhaps mid-sized business to get preliminary begin and potential growth.

Venture capital is definitely a kind of private equity capital that may be offered during the early-stages to get a business who has substantial growth possible. Around return for your money the item receives, your borrowing company increases the venture capital fund shares inside company and plenty of control within the company policy decisions. There are many venture capital firms around India that offer brand capital on the businesses and help all of them in order to grow his or her brand value inside market. Having impressive business models and strategies, all these firms help your regional and very little recognised brands to return towards limelight. Plenty of companies similar to times private treaties offer to provide organize assist and insights on the investees by partnering with them. All these partners in many cases are referenced because private treaty companies that can offer plenty of control of the business or perhaps shares on the investors around return on the capital investments.   Your capital advisors of the individual firms are usually hugely skilled professionals having many years of expertise inside domain associated with marketing, business development exactly who very best manual your investee firms in order to build your brand value. And so if you are are trying to find venture funds to get brand promotion, subsequently taking help associated with such venture capitalists could really assistance to the very best.

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Startup competition. Venture capital and seed investment: nanotech

Participants in to the startup competition Nanochallenge and Polymerchallenge 2010 have the chance to receive financial and management support for the establishment and growth of their business ideas.

Veneto Nanotech, the Italian Cluster of Nanotechnology, and IMAST, Italian Cluster for polymeric and composite materials and structures, will award for the 6th following year 600.00 euro to support researchers and scientists in the establishment of high tech start-ups.

The international business plan competition develops in four steps:

registration and executive summary submission by September 20, 2010, for the selection of finalist teams;
mentoring, support to translate the technology and entrepreneurial idea into a feasible business plan;
final contest, end of November 2010, selection of the winning projects by an international jury;
start-up phase, winning teams become real ventures and are incubated inside Veneto Nanotech and IMAST high tech clusters.

So far 56 teams coming from 18 different Countries have participated in the Final Contest; 2,4 million euros have been invested in the winning start-ups by Veneto Nanotech and IMAT; 7 start-ups have been founded; 15 milion euros have been raised in further rounds of investments from venture capitalist and industrial partners.

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The Final Contest is a unique moment of networking between teas and investors, sponsors and scientific environment.

Each year Nanochallenge and Polymerchallenge attracts researchers and scientists with innovative ideas from all over the world. Not only the winners receive a seed investments for the start-up phase, but they also receive the opportunity to use the resources and assets of the clusters: laboratories, instruments, machines, office spaces, competences from other researchers, management support.

Besides winners are supported in raising further investments from venture capitalists and private equity funds.

Information to participate and win one of the seed money for start up business are available on the website www.nanochallenge.com.

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Venture Capital & Private Equity Investments In Trading

Blackhawk has devoted itself to the belief that clients come first. That has led us to create a business model designed to serve the needs – and achieve the goals – of our Investors as well as our Advisory and Trading clients. By aligning our interests with those of our clients, Blackhawk has become a trusted partner for Investors and corporations worldwide. Many of the world’s top private family offices value Blackhawk’s careful stewardship of their capital and have entrusted us with ever-increasing levels of assets. Advisory clients in USA recognize that we bring a deep understanding of their strategic objectives and a commitment to provide effective solutions to all assignments. Trading clients in USA know better than anyone that in the last analysis, our only freedom is the freedom to discipline ourselves.

For Investors around world, “clients first” means that our firm and senior staff have committed their own capital to our Investment funds, aligning their interests closely with those of our Investing partners. For Advisory clients, it means that we are independent and conflict-free. And for Trading clients, it means that we operate the firm with integrity, prudence and a view toward creating long-term value. Investors and clients benefit from synergies across our spectrum of businesses, including alternative asset management, principle Investing, advisory, financing and restructuring activities. We have a culture and organizational structure that facilitates the appropriate sharing of insights and knowledge among all of our businesses, coupled with the ability to bring our full financial and intellectual resources to bear in creating compelling value. Our Financial Advisory team is highly regarded for its expertise in a wide range of mergers and acquisitions, private financings, structured corporate and real estate products and other transactions. Since the firm’s inception in 2004.

Blackhawk’s private equity team selects and arranges Private Equity Investments in the corporate and Real Estate sectors. For corporate investments, Blackhawk’s corporate team looks for investment opportunities in mid-size companies with capable managers, prominent positions in their industries, a strong track record and potential for growth. For Real Estate Investments, Blackhawk’s real estate team sources deals and performs extensive due diligence, and arranges financing and the acquisition of US properties that offer Blackhawk’s clients Investment opportunities with the potential for both strong cash flow and attractive capital gains, typically over a three to five year investment period. Blackhawk initially capitalizes real estate acquisitions and joint ventures with a combination of Blackhawk equity and third party debt. The transactions are typically aggregated into a series of multi-property portfolios for equity placement to our shareholders group of 22 family offices along with a core syndicate we have been co-investing with over the last two decades. As in corporate private equity, we offer our clients discretion on their investments into real estate portfolios. The properties are aggressively asset managed over the investment term to increase cash flow from operations and to build value until realization and exit. These are the types of businesses where Blackhawk’s approach which involves supporting management teams with a range of in house strategic and operational, as well as financial, resources, can most effectively increase value during our target three to five year holding period.

Above all, Blackhawk takes great pride in the caliber of its people and the collective track record they represent. Over the years we have made a concerted effort to attract and retain the best and most maverick minds in the business, with broad-ranging expertise in private equity, real estate, investment banking, leveraged finance, restructuring, M&A, trading and many other disciplines. Outstanding people have without a doubt one thing in common: An absolute sense of mission. For more Information fell free to check our Blackhawk partners site-: www.blackhawkpartners.com/Home.aspx

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