Monthly Archives: June 2012
There are many different types of venture capital firms and a plethora of funding sources for businesses which are in trouble, or for one which is just getting started. Effi Enterprises helps emerging companies and those who are involved in trying to establish entrepreneurship find funding sources. These funds are provided for a business along with some expertise and counsel to help the company become better established. Usually, venture capital is a type of private investing where money is given to the company in return for stock. These “seed” funds are planted in the business in the hope that the business will be profitable down the road at which time the initial investor will reap the benefit of the profits. One way of looking at it is that it is a long term commitment with financial backing to ensure the success and profitability of a new company.
Vulture Investing and Leveraged Buyouts
In the 80’s there was a term used a lot in the financial realm, “leveraged buyout.” The new term for this is “vulture capital.” Rather than seeding money into a business that has high growth potential, a company purchases the controlling shares from a company so that they have the leverage. Generally the intent is not to help the company be profitable, but rather to profit from the liquidation of the company’s assets.
There are not always negative connotations. Vulture capitalism is the practice of purchasing distressed assets from a company. This means the company is likely to die, is in trouble or in danger of bankruptcy. Many times the “vulture” will believe that there is at least some redeemable value in the company and therefore will invest in the company and either try to liquidate it before it hits the bankruptcy stage. Many see this as a great benefit to the economy while others see the vulture as the “bad guy.”
Bad guy or good deal?
Public and private investing occurs on many different levels in the business world. Every business understands that some will be profitable and some will not. With any investment there is always a huge risk involved, even for the vulture capitalist. Usually, they purchase an offer because it is very low and many times there simply are not any other takers. But this does not always mean that they are predatory in nature. It is very common for people to purchase foreclosed homes, when the current owner was not able to manage the asset and no other buyers are obtainable. Who knows if the vulture is even getting a good deal or not? They may get stuck with a purchase that they are unable to unload onto someone else down the road.
Vulture vs. Venture
Vulture and Venture capital are both funds that are poured into a business. The intended outcome is the main difference. Most VC firms will put action and counsel behind their invested finances to ensure the company’s success and profitability. Usually this type of investor receives a large piece of equity or control in the business so that they can help change things around if the business starts to suffer. Typically, the vulture investor is already planning on selling the company and liquidating as many of the assets as possible. They may invest some time in trying to establish more value in the assets before selling it off, but typically this is the goal when the investment is made. There is no doubt that no matter what type of investment is contributed, the intended goal is profits for everyone involved. The biggest difference here is how the final goals are achieved.
Angel Investing is a type of private investing in which funds are invested into start-up companies. These are much smaller amounts than Venture Capital funds which can range into the billions of dollars. Generally, angel investors invest between 25 and 50 thousand dollars into a deal. Efraim Landa has helped entrepreneurs for many years now by helping them locate this type of funding for an early stage company. One of the latest trends in angel investing is where a group of those interested in private investing pool their resources and capital together to invest in start-up companies. Angel investors look for investing opportunities which can yield large returns in terms of a 10 to 20 time potential return.
Benefits of Angel Investing
As a general rule, angel investors may choose to focus more on local companies. This is not always the case, however many prefer to place these types of investment funds into a local company because this makes it easier for them to become more involved with the company. Companies like Effi Enterprises which offer these types of funding for a company will generally become involved in some capacity with the board of directors. This is so that the company can benefit from their years of business experience as well as learn from their particular areas of expertise. This helps provide stability to the company that they are investing their funds in. It is a protective move for the investor; but also helps the company become better established and solid.
How are companies selected?
Selecting companies to invest in can be an arduous task. It can take a long time for an investor to decide which of the companies will benefit most from the invested funds. Investors are very selective and many times weed out 80 to 90 percent of companies who are applying simply because the company does not meet their criteria. The other 10 percent or so can then be narrowed down to just a company or two that Angel Investors will contribute to. For this reason it is very important that the entrepreneur present a thorough business plan when requesting this or any type of funding. Once the companies are selected a thorough analysis will be made of the company. This is a lengthy process as the business must be evaluated from every possible aspect.
Investing for Returns
Angel investors will contribute to a business that they feel they can get a substantial return from. This means that it is a very tough process. The asking company must be able to establish and explain details on items such as liquidation preferences, anti-dilution clauses and board seats. Angel investors do not want to dump money into a company and walk away hoping it will turn into profits. They are making and investment of their money along with their time to help the company succeed. When the company succeeds, so will the investor. In our present economic climate it can take a longer period of time to realize substantial profits from an angel investment. So they will want to invest in a company which has lower levels of risks. Those who offer venture capital will not require as much from a business, and they will not be as involved in the business once the investment has been made.
Angels who invest in your company will take an active part in helping it succeed. Angel investing is not like a loan any other form of debt financing; it actually gives another party ownership interest in the company. An angel investor will be looking for a company with a huge potential for growth and profits. This will be an entrepreneur who has plans of expanding their businesses. Generally this type of investor will take equity in your company and then when it is sold or if it grows to the point of going public they will take their gain.
There was a day when any kind of IPO investment in the technological world was all but guaranteed a huge profit. Some investors grabbed up public stock in companies like VA Linux and had some great first day gains. Those who invested and then sold did very well and made investing look like a very easy process. But investors were disappointed in the long run as they watched values plummet.
It is important to realize that there is no investment that is a guaranteed, sure thing. There will always be risks associated with investing. Companies like Effi Enterprises are aware of the risk factors and carefully consider the high tech companies that they offer venture capital or private investing options to. The biggest lesson many investors have learned is that the IPO market leveled out and there are not the same extreme gains to be had simply from flipping stocks. IPO’s have a huge set of very unique risks which makes them different from trading in average stock. A good example right now is the Facebook IPO. Many people grabbed up public shares and invested in the top social networking company. Stocks have risen somewhat from their initial drop but they are still about 13 percent down from where they were a short time ago. That’s not actually a bad drop compared to many companies such as Zeltiq Aesthetics who is sitting on a 65 percent decline from its initial IPO price.
People thought they could buy up some Facebook shares and watch the prices soar immediately. Basically, they took a risk and lost. IPO’s are not the best option for most investors. When a company goes public one of the main risk factors is that there has not been a trading history and so there are no analytical reports to examine. Trying to obtain information on a company that is going public is going to be difficult. Most of the time companies have traded publically and so there are lots of analysts which have done their homework. These reports can at least reveal some of the problems they have encountered.
Purpose of an Underwriter
Many times a company which is going public does not have a strong underwriter. This of course, does not mean that investment banks never produce a dud, but generally quality brokerages will be bringing only quality companies public. It is very risky to choose companies who are represented by smaller brokerages because they are many times willing to underwrite any company at all. A larger investment firm can be more selective about which companies it underwrites than a small underwriter can. However, the smaller broker can make it a lot easier for private investing since it’s much easier to purchase IPO shares.
Read the Prospectus
It is important to read a company’s prospectus. But keep in mind that this is not done by an outside party, it is written from within the company so it is not necessarily as reliable as a third party analysis. You will need to note the risks and opportunities as they are presented by the company. You will want to know why they are going IPO. If the money raised by IPO is going to repay loans or to buy equity from private investing, stay clear. However, if it is going toward marketing, expansions or research it is usually a good sign.
This does not mean that IPOs are all bad. There have been many success stories over the years. There are some very successful companies that go public every single month, however, it can be very difficult to sift through it all and find the investment opportunities with the most potential. Efraim Landa works with companies who are going public to help ensure each party’s success.
Warren Buffett is a household name because of his great wealth. But many of us forget that he amassed this wealth through different forms of private investing and hedge funds. He learned valuable lessons at a young age through investing in the stock market. As he matured he ventured out into various practices in private investing. For many, it seems that having lunch with this very wealthy man would be out of the question. However, each year Warren Buffett sponsors a luncheon that is a fund raiser for his favorite charity.
The GLIDE Foundation
Normally, eating lunch at a higher end steakhouse in Manhattan with nine people would run somewhere around $1000. But this year it cost on investor nearly $3.5 million. That was the final bid on this year’s charity auction in which the winner gets to enjoy lunch with Warren Buffett and the proceeds go to a charity based in San Francisco, the GLIDE Foundation. The charity provides meals, housing and funding for community based clinics. Over the last 13 years the auctions have raised more than $11 million for the group.
The charity auction is conducted online and the winner gets to take seven friends for lunch with Warren Buffett at the Smith & Wollensky steakhouse located in Manhattan. In 2011 a fund manager, Ted Weschler paid $2.63 million to share lunch with Warren Buffett. But after the lunch Weschler was hired by Buffett’s Berskshire Hathaway as an investment manager. He only beat out one other person in last year’s auction in which only 8 bids were offered by just 2 people. Weschler won both the 2010 and 2011 auctions which yielded almost $5.3 million for the charity.
In 2012, there were 10 bidders in all and over 106 bids were made during the 5 days the online auction was open. When it ended, the winner had bid $3,456,789 exactly. This amount will be given to Buffett’s favorite charity and the winner will enjoy lunch with Buffett. Smith & Wollensky also contribute a minimum of $10,000 to the charity to host the lunch.
The goal is not for Warren Buffett to find future employees through the luncheon; it is simply to raise money for his favored charity. While Buffett isn’t looking for new hires through the auction, Weschler did end up getting hired by Buffett last year to help in managing Berkshire’s investment portfolio. Most of the time, the winner of the auction just gets the opportunity to sit and converse with Warren Buffett, known throughout the world as a profitable investor and a leader in entrepreneurship.
Discussions with Warren Buffett
But talk over lunch is not always only about money with this multi-millionaire. Although the big draw for many bidders is Buffett’s amazing business sense and outstanding success in investing, the lunchtime conversation does not center around potential investments. Since Warren Buffett has made such a mark on philanthropy, many past winners have wanted to discuss giving. Since 2006, Buffett has continued to slowly give a portion of his fortune. He wants to eventually divide his Berkshire stock up between five charitable foundations. He intends for the largest portion to go to the Bill & Melinda Gates Foundation.
Warren Buffett and Bill Gates have been trying to encourage extremely wealthy people to give away at least half of the fortunes they have amassed. Almost 80 of the United State’s wealthiest have joined in with this effort.
Auction winners have expressed that the time spent having lunch with the well respected Warren Buffett is well worth the price they have paid. The lunch usually spans several hours and Buffett answers questions as they are posed. Usually, according to Buffett, many of the questions are about non-business topics like family and philanthropy.
Before a company is publicly traded on a stock exchange it remains a private equity company. Effi Enterprises is experienced in private equity financing for start-up companies and emerging companies who have not yet gone public. Even though private equity investments can be contributed to any type of company, Efraim Landa and Effi Enterprises offer private equity investments specifically to companies which are involved with developing and implementing of high tech medical equipment.
Private Equity Investing
Sometimes an individual may be a private equity investor, but generally a private equity fund is set up by a group of investors who all contribute to a private equity fund. Once the fund is established it is used to support the investment in the company. Most generally, a private equity fund is used to support a variety of investments which are used to purchase the controlling interest in multiple companies. Each contributing investor receives portions of the profit that is generated from the investments. The portion of profit each one receives is proportional to the size of their investment into the fund. Effi Enterprises contributes private equity investments in start-up and emerging medical companies.
Strategies for Investing
There is a considerable amount of strategy that is involved in making investments of this kind. Basically there are three types of strategies. One of the most common is to raise venture capital which is funds that are invested in a startup company that has a great potential and a high probability of being successful. The goal of this type of private investing is that the company will become profitable enough to eventually go public with its investing possibilities. A second type of private investing is growth capital which is invested in a more established business with the intent of helping it expand its services. And the third type of private investing is where several investors put funds together to implement a Leveraged Buyout (LBO). This is a purchase of a company that is either losing money or is underfunded. Effi Enterprises is a private investor in companies and they can also offer their expertise in the area of counseling companies on their available options.
Private Equity Investing and its Advantages
The main advantage for those who engage in private equity investing is that those who contribute are directly involved in the control of the company. They do not have to please any shareholders so they don’t have to worry about any other outside interests. Nor do they have to justify their decisions to another party. This allows the company to concentrate on their long term productivity and a more gradual build up of profits. This aspect can be advantageous to the company too. And investors are more likely to enjoy larger dividends when the company expands to the point of going public with their investments. Private equity investors earn money through their investment in private companies. And then the company benefits from the investors experience and expertise such as Effi Enterprises who can contribute business savvy which can help the company succeed.
Private equity can be very beneficial to the economy. Private equity is generated by investors who put their monies together and invest in various businesses that they think have a high potential for growth and improvements. They collectively work together to help the business grow. The whole point is to provide funding and operating costs to companies in exchange for a percentage of its profits. Effi Enterprises helps identify investment opportunities for private equity companies and offers operating expertise and advice for companies.
Private equity is helping the economy by providing many instances of job creation. Recently, according to the Bureau of Labor Statistics there has been a slow decrease in unemployment and small to mid-sized businesses are showing a hiring increase. This is due to private equity which is developed and implemented for the purpose of helping businesses succeed before they are large enough and established well enough to go public with their investments. Private equity is put into a company to provide financial stability so that the company can work on developing new products or expand. These lead to more jobs being created.
The Association for Corporate Growth indicates that there are over 4 million jobs in the US which are directly being funded by private equity and experts are predicting that this trend will only increase in the next few years.
Private equity is provided for a business by groups of people who have the business savvy and experience to help bring about economic growth. This type of funding is specifically for companies who need financial resources in order to expand or otherwise grow. Investors are choosey about where they put their funds and generally only invest them in companies that are expected to have great success and experience growth in the future. Then as the businesses grow, jobs are created and the economy is strengthened.
Private equity funds are meant to last for a short period of time. The goal is the growth of the company. In one sense the company is expected to outgrow private equity and need public funding. This means that the intent is for the company to be sold within just a few years. It is not meant to be a permanent situation. The investors have controlling interest in the company and offer their expertise to help ensure the company’s growth. Effi Enterprises can provide a wide range of expertise and experiential based knowledge which can be beneficial to a company’s growth. Since the investors are primarily interested in the growth of the company they want to ensure that value is created for that company. The greater a company’s value the easier it will be to get it into the public investing realm. As the worth of a company climbs, it will generate a positive impact on the economy.
Private equity firms like Effi Enterprises offer a business many different types of marketing strategies. The board can offer a company the funds to help them with expansions so that profits can be generated. Their whole goal is to eventually put the company out for public investing. The investment team will then be working diligently through many techniques to help the business succeed. Effi Enterprises can help a company establish a solid business plan, prepare and review financial projections and offer hands-on management and leadership. The success of a company and its positive impact on the economy are factors behind private equity funds.