Financial Management for Small Business
Formal venture capital funds are provided through a limited partnership were the managing partners invest on behalf of the limited partners (Carter. S., Jones-Evans. D. 2006). A business angel usually fits the profile of a well-educated, wealthy individually who has skills and experience working with start-up business ventures, which lets them add a great deal of expertise to the start-up or growing businesses using a more hands on approach in a market they are familiar with (Macht, S. A. and Robinson, J. 2009). Corporate venture capitalists involve corporations investing on behalf of their shareholders, for financial and/or strategic gains (Denis, D. J. 2004). Informal venture capitalists have established themselves as the primary source of external equity capital for new businesses (Feeney, et al. 1999). Business angels typically will invest sums of around £10,000 to £250,000 primarily and the average investment is £25,000 to £30,000 (Arnold. G. 2008). Through the joining together of business angels, investment syndicates are created allowing the sums invested to be relatively larger (Carter. S., Jones-Evans. D. 2006). On average they will invest for 5-8 years (Feeney, L., Haines, G. H. Jr. and Riding, A. L. 1999). Formal Venture Capitalists consist of specialist financial companies. These companies have a very detailed selection process and concentrate on fairly risky investments (Carter. S., Jones-Evans. D. 2006). Venture capital funding has an average financial investment of £1 million to £2 million. The smallest investment is usually around £100,000 (Carter. S., Jones-Evans. D. 2006). In addition to providing funding, venture capitalists can add a variety of other inputs, such as operating services, networks, and moral support (Fried, V. H. and Hisrich, R. D. 1995). Venture capitalists invest on average 5-7 years and they aren’t usually willing to invest less than £2m (Arnold G. 2008). Corporate Venture Capitalists are corporations that generally invest in mature, innovative and technology-related businesses due to the possible high return in the technology industry. These corporations have large sums of funds available for investment, along with the value-adding involvement, networks and relevant synergies provided for the business that they invest in. Corporations invest in entrepreneurial firms in a range of ways including; through direct investments through corporate venture funds, indirect investments through independent venture funds, and through the acquisition or merger with start-up companies (Denis, D. J. 2004).
Goldman has created a brand that enforces ‘high quality, culturally authentic, honest, simplicity’ (case study pg.5). This shows that any funding that will be accepted by Honest Tea should share a common vision for the company, adding value at the same time. The case study states that Goldman believes that through an investment from angel investors a common vision of soft considerations for the business and added non-financial value could be obtained (case study pg.9). The case study made clear that Goldman estimated that a £2 million round of financing was needed to carry Honest Tea to profitability (case study pg.8) which would allow for continued growth at a controlled rate. Over financing through a formal venture capitalist could force the company’s founders to lose a greater amount of control than they are willing to give up through giving up one or more seats on the board of directors (Carter. S., Jones-Evans. D. 2006). Formal venture capitalists prefer to take more control on the board of directors than a informal venture capitalist because they invest a larger amount into the company and want to make sure their investment is monitored closely (Carter. S., Jones-Evans. D. 2006). Honest Tea’s founders originally saw a large outside investment as a distraction when...