How Venture Capital Is Different From Traditional Financing?

Venture capital is a new form of financing that has come as a boon for young entrepreneurs and it plays a strategic role in financing small scale enterprises and high technology and risky ventures. In all the developed and developing nations it has made its mark by providing equity capital, so, they are more like equity partners rather than financiers and they are benefited through capital gains.

As young and growing businesses need capital at the right time, not only to float their company in the market, but also to survive in the long run. When financial institutions like banks and other private financial organizations hesitate to take the risk of early stage financing, since the credibility of the budding firm is not established, venture capital firms comes into the foray to fund the project in the form of equity which can be termed as “high risk capital”.

Although there is a misconception that the interest of venture capital firms are mainly driven by cutting edge technology in the industry, it is not always the case with all venture capital firms. A venture capitalist associates high risk with huge profits. Of course after thoroughly analyzing the prospects and consequences and the viability of the project. The venture capitalist becomes a partner with the entrepreneur in his business. True venture capital financing need not confine itself to high end technology products, any risky idea with great potential can be financed and venture capital is an all powerful mechanism to promote and institutionalize entrepreneurship.

Mainly venture capital focuses on growth. A venture capitalist is very much interested to see a small business growing into a larger one. He assists in setting up the business, funding it and comes all along to seethe firm grow. If it is a potential equity participation, the venture capitalist can come out of the partnership once the company becomes profitable and take back his money by selling the shares or convertible securities. If the firm opts for a long term investment from the venture capital finance, the financier has to develop an investment attitude for a long term, say five or ten years to allow the company to make large profits.

Another form of financing is that the venture capitalist has his hands on management by which he becomes an active participant in the operations of the firm and his thinking is streamlined as to how to multiply and make quick money which is a win-win situation for both sides. Not only finance, the venture capitalist also contributes to marketing, technology upgradation and management skills to the benefit of the new firm.

The venture capitalist’s management approach is significantly different from that of a banker whose prime concern is collaterals and securities in the form of assets. He keeps his hands off the management and plays safe. The venture capitalist can also not behave like a stock market investor who invests money without having thorough knowledge about the company’s business and management. He combines the qualities of a banker, stock market investor and an entrepreneur in one.

Latest trend is that popular and giant software companies promote their content through the budding enterprises, by providing with the latest technology, training and expertise apart from finacing, which spreads the geographical area of operations of the parent company and also expand their territory to scale greater heights. Venture capital firms should focus on fostering growth and development of the enterprise and need not confine their interests only to finance technology, infrastructure, information technology services and the like. They need to diversify their investment in various sectors and even revival of sick units can be thought of as one of the options if there is potential in the business.

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Personal Finance Technology Trends For 2012

Hello and here’s wishing all of you the best of health, wealth, peace of mind and success with your financial goals in 2012.

I thought I’d start the year off with some trends; especially in technology, that might help you better meet your personal financial goals, because there are a host of personal finance services and applications, or apps as they’re called, that are going to change the way we Americans invest, bank, track our finances, shop, get coupons and so on.

Some of these apps use the web, but increasingly, many are available on mobile devices because more than a third of all American adults now carry “smartphones” with amazing amounts of display using processors that are as powerful as the ones in your laptop.

In fact, if you’re like many of my clients who’ve been holding out against the invasion of technology you might want to reconsider your decision in 2012. This might just be the year to allow the benefits of these innovations to help you gain better control over your finances.

Maybe now’s just the time to stop using a pen to write checks, paper to track your expenses, and scissors to clip coupons, to let technology streamline this process for you a little, and in so doing, to add to your savings and bottom line. Because, let’s face it, your best coupon deals or hotel and airfare discounts no longer come as inserts or advertisements in your newspaper but go to those who use the Internet.

So here are a few ideas for you to reflect on and consider opening yourself up to, and while I encourage you to listen to these with an open mind, adopt only those that you are 100% comfortable with, knowing full well that you could always revert to paper and pen if this turns out to not be your cup of tea, so here are some new ways to think:

1. Think “Mobile Money” How does that sound? Well, here’s the lowdown. With technology where it’s at today, you can now wave your smartphone in front of an intelligent device to make all sorts of payments, and this trend appears to be really catching on because it helps retailers, mass transit operators and others sell more while cutting down costs. With mobile money, your smartphone is securely linked to your bank or credit card account and saves you the hassle of carrying a card, swiping it, getting a bill, signing it, and so on: and it saves the seller money too. Moreover, I suspect merchants and service providers, such as Google Wallet, are going to make this more attractive by offering promotions and discounts to folks that adopt this mobile payment technology, much like they offered incentives in the early days of the Internet.

2. Think: Person to Person Payments. Remember how, when you’re at a restaurant with friends and it’s time to split the bill, you either ask for separate bills or fumble for cash to pay your share of the bill. Well, how about just clicking your smartphones against each other and you’re done? Companies like American Express, Mastercard, Visa and PayPal now offer a host of services that let you easily transfer money between friends using verified bank or credit card accounts. This makes sending money across the street, neighborhood or country faster, easier and less expensive, and remember, you are ALWAYS the bearer of any expense your bank or credit card company incurs in all the transactions you make, so if this technology reduces costs, chances are, some of these savings will flow through to you too.

3. Think: Money Management. There are new web sites that have also turned into apps on your smart phone, such as Manilla.com which I mentioned a few weeks ago in my interview with Terry Savage, and Pageonce which help you manage bills, payments, subscriptions, coupons and more; for free! So you never have to worry about a missed payment, late fees, trips to the post office, stamps, missed deals where you could’ve used a coupon to save big, and so on. What’s more, many of these services genuinely have an environmentally friendly agenda and want to help replace paper clutter with electronic account statements. Other, more specialized sites such as savvymoney.com help customers manage their debt: credit card payments, mortgages, car loans, and automatically give you tips on when to refinance or make extra payments to reduce your overall interest expenses, and so on. Others like betterment.com are designed to simplify investing and finally there is mint.com, whose CEO I interviewed about a year ago which was the first site like this out of the gate. And it’s a good site to bring all of your financial accounts together. So, with an open mind, check them out and sign up for the ones that make sense to you. And remember, you can always opt out if you don’t like ‘em.

Now, before I go further, I want to stress that I am not recommending these specific sites or validating what they offer but merely citing examples of technology advances in personal finance that are worth exploring further.

4. Think: Personalized Deals. We all heard about the promise of personalization, and while this has happened to some extent with the Internet, it hadn’t quite panned out in the personal finance space, until now. In fact, to understand personalization, consider trying this experiment. Take your laptop over to a friend’s house and type in the same search phrase: say, “top 10 deals in Miami” in google.com or any other search engine: your friend on his computer and you on your laptop using your friend’s Internet connection while sitting right next to him, I am almost 100% certain that your search results will differ because search engines personalize search results to your browsing history. The good news is that with smartphones and location-based services, stores can now know when you walk into them, what your purchase history and profiles is, and entice you with special offers just for you: personalized discounts and on the spot deals to customers willing to opt into these programs. And frankly, for the most part, you have little personal information to lose that you haven’t already lost by simply using the Internet, Facebook, email, search engines or smartphones at home!

I know it sounds a little scary: like an Orwellian universe, but it’s not as bad as all that. YOU have the right to opt in or opt out of any of these services.

5. And Finally, Think: Social commerce. The Internet spawns strange terms like this one, but what the heck! Apps now let you borrow or even legally take money from individuals across the world: who might want to give you a loan where they believe in you more than a bank, help you out in a crisis, lend you money to do up a kitchen or bathroom, or simply invest in a brilliant idea: private individuals reaching out to each other and opening their wallets in what’s called social commerce without borders. Check out sites like weemba.com or kickstarter.com if you have an idea you think others may want to fund. It’s actually pretty cool to think that banks will no longer control what you can and cannot do, financially. I love the free markets.

But don’t think large banks and corporations aren’t watching all of this very closely and actively stepping in where they sense success: so in 2012 you will likely see a lot more happening in the space of personal finance technology… and as we kick off the new year, I urge you to try and “get with it” if you like, and explore ways of saving time and money by using technology to your advantage.

Why Companies Should Consider Leasing Computers and Technology

Many companies are not aware of the significant benefits related to acquisition financing in computers and technology segments. The proper term for this type of financing is ‘ Technology lifecycle management ‘. Most business owners simply consider the following question: ‘Should I buy or lease my firms new computers and software and related products and services?’

Two old adages related to leasing still ring true when it comes to the technological aspect. That is that one should finance something and depreciates, and one should buy something that appreciates in value. Most business owners, and consumers as well know very well that computers depreciate in value. Systems we paid thousands of dollars for years ago are now hundreds of dollars. Walk into any ‘ big box ‘ retailer and see the dramatic moves in technology.

Business owners who finance technology demonstrate a higher level of cost effectiveness. The company wants to reap the benefits of the technology over the useful life of the asset, and, importantly, more evenly match the cash outflows with the benefits. Leasing and financing your technology allows you to stay ahead of the technology curve; that is to say you are always using the latest technology as it relates to your firms needs.

Businesses that lease and finance their technology needs are often working better within their capital budgets. Simply speaking they can buy more and buy smarter. Many companies that are larger in size have balance sheet issues and ROA (return on assets) issues that are compelling. They must stay within bank credit covenants and are measure often on their ability to generate income on the total level of assets being deployed in the company.

Lease financing allows those firms to address both of those issues. Companies can choose to employ an ‘ operating lease ‘ structure for their technology financing. This is more prevalent in larger firms, but works almost equally as well in small organizations. Operating leases are ‘ off balance sheet ‘. The firm adopts the stance of using technology, not owning technology. The lessor/lender owns the equipment, and has a stake in the residual value of the technology. The main benefit for the company is that the debt associated with the technology acquisition is not directly held on the balance sheet. This optimizes debt levels and profitability ratios.

At the end of those operating leases, which are usually 36 months long, the customer has the option of:

1. Returning the equipment
2. Buying the equipment ( not likely though )
3. Negotiating an extension of the financing for continued use of the computers, technology, etc.

Companies that have recently acquired computers and technology can in fact negotiate a’ sale leaseback ‘ on those same assets. This financing strategy brings cash back into the company, as the firm has employed a leasing and financing strategy building on our above noted them – using technology, not owning technology.

In summary, the key benefits of computer and technology lease financing are:

* The company can stay ahead of the technology curve
* Computer leasing and financing has significant balance sheet and income statement benefits
* The firm has flexibility with respect to buying new product, returning existing technology, and generating cash flow for purchases already made

Many of the benefits we have discussed relate to leasing in general. However, technology and lease financing are very perfectly suited to the business financing strategy of leasing.