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Venture Capital - Love you? Love you not?

07 September 2010 16:56

As business owner, you sure want to grow your business day by day.  However, in business development process, funding is very critical.  Besides lending from financial institutions, equity financing is also one of the very common solutions.

From time to time, I read from various sources that newly set-up businesses or those arranging initial public offering (IPO), operations developed speedily because venture capitalists are interested in their businesses.  These success stories might even become industry leaders or cash cows for the owners.  Thus, many people with “great ideas” always eager to meet the venture capitalist, they want to show off their “great ideas” for funding.  However, even though they thought they are well prepared with smart and detailed business plan, when they have a chance to meet the venture capitalist, they will not be able to get their money.  Was that because of the “idea”?  Or the venture capitalist they met are not willing to take the risks?

In fact, the ultimate reason is on the existing business, it is not “attractive” enough for the venture capitalist.   Also, many business owners wrongly think that approaching venture capitalists is the only way for business growth.

Entrepreneurs misunderstood that once they got the funding from venture capitalists, all the original issues related to the business operations will be solved. During the business plan presentations, they will suggest to clone the operation model repeatedly to push revenue once they receive the venture capital.  Or, entrepreneurs would suggest launching a mega promotion plan for branding and business development.  Even more aggressive, some business owners would suggest using the funding for merger and acquisition so as to grow the business as soon as possible.   They thought that they will be able to bit the competitors and increase market share immediately with their great ideas. 

However, business development is not as simple as “funding”.  Venture capitalists will suspect if the management model of small scale business could be repeated exponentially?  Also, is there market demand to match with the newly develop market supplies?  To develop a promotion plan is easy, but is the response and monetary return match with everyone’s expectation?  Of course monetary reward is very crucial for venture capitalists to evaluate business proposals, and they are the experts of merger and acquisition deals, thus, entrepreneurs better be developing their businesses step by step.

Afterall, entrepreneurs should not be counting on third party for extra funding on business development.    On the other hand, venture capitalists some time will chase after those businesses not in need of funding.  Venture Capitalists will of course check all details and do all the evaluations to ensure return on investment before making any decision. In fact, same like lending from financial institutions, venture capital is not free and some time even more expensive. 

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Gerry Ma

Gerry Ma's Profile

Director of ColArt Hong Kong Limited, and Chairman of Trade & Industry Department (HKSAR) Customer Liaison Group for SMEs

In 2005, Mr. Ma has been elected as the Chairman of the SME Committee of Hong Kong General Chamber of Commerce (HKGCC, 2005-2009). He has also been i...