UNIT 5: GROWING NEW VENTURE

The important aspects in growing the new venture include; the management team,
strategic planning, managing growth, financing growth, developing a team of advisors.

1.MANAGEMENT TEAM

Getting the right mix of people to complement and reinforce your business is essential.
Having an effective management team helps you to create a more efficient and capable
business.

1.1.The role of the management team:

➢ Each member of a management team can concentrate on their own area of

expertise.
➢ Team members relate well to one another contribute significantly to the overall
success of the business.
➢ As a business grows a management team is also important in spreading leadership
responsibility. It is crucial if:
- your business operates in more than one location.
- you are in more than one type of business/industry.
- your business has different cultures, for example after a merger or
acquisition.
➢ Management teams can also operate at different levels, consider establishing
teams to help run particular locations or divisions.

1.2.Management team skill sets: All businesses need a range of skills to be able to
survive and grow. If you want your business to grow it will reach a stage when these
necessary skills need to be improved and extended. The skills required to run a business
successfully include:

i. Sales and marketing skills: For researching and developing marketing opportunities
and planning and implementing new sales plans, to manage both the marketing and
the sales staff.

ii. Production skills: For planning and organizing production schedules, assessing
project and resource requirements, estimating, negotiating and agreeing budgets.
iii. Finance skills: For the financial health of an organization, produce financial reports,
direct investment activities, and develop strategies and plans for the long-
term financial goals of their organization.

iv. Administration skills: Administrative managers oversee the support operations of an

organization. They ensure that there is effective information flow and that resources are
employed efficiently throughout a business.

v. Procurement and buying skills: For proper descriptions and ordering of goods and
services to be procured within the project. To ensure that the contractor receives right
specifications and delivers the items in accordance with the approved delivery schedule.

2.STRATEGIC PLANNING

Growing a new venture means taking many decisions about the way you want to expand
your operations. Creating a strategic plan is a key component of planning for growth. A
strategy is a general plan to achieve one or more long-term or overall goals under
conditions of uncertainty. A strategic plan is typically focused on mid to long-term goals
in growing a new venture and explains the basic strategies for achieving them.

2.2.The purpose of strategic planning

The purpose of strategic planning is to set your overall goals for your business and to
develop a plan to achieve them. It involves stepping back from your day-to-day
operations and asking where your business is headed and what its priorities should be?

Taking the decision actively to grow a venture means embracing the risks that come with
growth. Spending time on identifying exactly where you want to take your business - and
how you will get there - should help you reduce and manage those risks.

To do this, you will also need to start collecting and analyzing a wider range of
information about your business – both about how it operates internally and about how
conditions are developing in your current and potential markets.

2.2.Build your plan on solid strategic analysis

There is a range of strategic models that you can use to help you structure your analysis
here. These models provide a simplified and abstract picture of the business environment.
SWOT (strengths, weaknesses, opportunities and threats) and PESTLE (political,
economic, social, technological, legal, environmental) are probably the best-known
models and is used by both smaller and bigger businesses.
SWOT Analysis: Involves identifying an objective of a business or project and then
identifying the internal and external factors that are favorable and unfavorable to
achieving that goal. These factors are considered using four elements:

S-strengths -attributes of the business that W-weaknesses -attributes of the business

can help in achieving the objective. that could be obstacles to achieving the
▪ Things your company can do well. objective.
▪ Qualities that separate you from ▪ Things your company lacks.
competitors. ▪ Things your competitor do better
▪ Skilled and knowledgeable staff. than you.
▪ Intellectual property, capital, ▪ Resource limitations.
technologies, etc. ▪ Unclear unique selling proposition.
O-opportunities -external factors that T-threats -external factors that could be
could be helpful to achieving the objective. obstacles to achieving the objective.
▪ Market for specific product. ▪ Emerging competitor.
▪ Few competitors in the area. ▪ Changing regulatory environment.
▪ Emerging need for your product or ▪ Changing customer attitude towards
service. your company.
▪ Press/media coverage of your ▪ Negative press/media coverage.
company.

PESTEL Analysis: A fundamental tool for business strategy and planning, helps
organizations to conduct an analysis of the external factors.

▪ P-political – e.g. taxation policies, foreign trading relationships and policies, or grant
support for businesses.
▪ E-economic – e.g. economic growth, interest rates, inflation rates, exchange rates.
▪ S-social – e.g. population growth rate, demographic trends or changing lifestyle
patterns.
▪ T-technological– e.g. automation, R&D activities, level of innovation, technological
awareness.
▪ E-environmental – e.g. Climate change, environmental policies, deforestation,
pollution.
▪ L-legal – e.g. changes to employment laws, discrimination laws, consumer protection
laws, copyright and patent laws.
3.MANAGING AND FINANCING GROWTH

In order to grow the venture, it is necessary to be prepared for growth and to understand
its implications. In many cases the growth may not be entirely voluntary. Customer may
demand more goods, better services and even better prices.

3.1.VENTURE CAPITAL

Meaning:
Venture Capital is defined as first stage finance to companies and also funding expansion
of companies that have demonstrated business potential but do not have access to public
securities market or other credit-oriented funding institutions.

Venture Capital is generally provided to firms with the following characteristics:

➢ Newly floated companies that do not have access to sources such as equity capital
and/or other related instruments.
➢ Firms, manufacturing products or services that have vast growth potential.
➢ Firms with above average profitability.
➢ Novel products that are in the early stages of their life cycle.
➢ Projects involving above-average risk.

A Venture Capital Fund (VCF) strives to provide entrepreneurs with the support they
need to create up-scalable business with sustainable growth, while providing their
contributors with outstanding returns on investment, for the higher risks they assume.

3.2.VENTURE CAPITALISTS

Venture Capitalists is a professional who is paid for doing his job, yes, venture capitalist
is nothing but a fund manager whose job is to manage funds that are raised. A venture
capitalist gets a fee to invest in companies that interest his investors.

• The most important difference between a venture capitalist and conventional investors
and mutual funds is that he is a specialist and lends management support and also
➢ Financial and strategic planning
➢ Recruitment of key personnel
➢ Obtain bank and debt financing
➢ Access to international markets and technology
➢ Introduction to strategic partners and acquisition targets in the region
➢ Regional expansion of manufacturing and marketing operations
➢ Obtain a public listing
Factor to be considered by venture capitalist in selection of investment proposal. There
are basically four key elements in financing of ventures which are studied in depth by the
venture capitalists. These are:

a. Management Team: The strength, expertise & unity of the key people on the board
bring significant credibility to the company. The members are to be mature, experienced
possessing working knowledge of business and capable of taking potentially high risks.

b. Potential for Capital Gain: An above average rate of return of about 30 - 40% is
required by venture capitalists. The rate of return also depends upon the stage of the
business cycle where funds are being deployed. Earlier the stage, higher is the risk and
hence the return.

c. Realistic Financial Requirement and Projections: The venture capitalist requires a

realistic view about the present health of the organization as well as future projections
regarding scope, nature and performance of the company in terms of scale of operations,
operating profit and further costs related to product development through Research &
Development.

d. Owner's Financial Stake: The financial resources owned & committed by the
entrepreneur/ owner in the business including the funds invested by family, friends and
relatives play a very important role in increasing the viability of the business. It is an
important avenue where the venture capitalist keeps an open eye.

3.3. STAGES OF FINANCING BY VENTURE CAPITALIST

Venture capital can be provided to companies at different stages. These include:

I. Early- stage Financing

➢ Seed Financing: Seed financing is provided for product development & research
and to build a management team that primarily develops the business plan.
➢ Startup Financing: After initial product development and research is through,
startup financing is provided to companies to organize their business, before the
commercial launch of their products.
➢ First Stage Financing: Is provided to those companies that have exhausted their
initial capital and require funds to commence large-scale manufacturing and sales.
II. Expansion Financing

➢ Second Stage Financing: This type of financing is available to provide working

capital for initial expansion of companies, that are experiencing growth in
accounts receivable and inventories, and is on the path of profitability.
➢ Bridge Financing: Bridge financing is provided to companies that plan to go
public within six to twelve months. Bridge financing is repaid from underwriting
proceeds.

III. Acquisition Financing

As the term denotes, this type of funding is provided to companies to acquire another
company. This type of financing is also known as buyout financing. It is normally
advisable to approach more than one venture capital firm simultaneously for funding, as
there is a possibility of delay due to the various queries put by the VC. If the application
for funding were finally rejected then approaching another VC at that point and going
through the same process.

3.4. ADVANTAGES

Venture capital has a number of advantages over other forms of finance, such as:

i. Finance - The venture capitalist injects long-term equity finance, which provides a
solid capital base for future growth. The venture capitalist may also be capable of
providing additional rounds of funding should it be required to finance growth.

ii. Business Partner - The venture capitalist is a business partner, sharing the risks and
rewards. Venture capitalists are rewarded by business success and the capital gain.

iii. Mentoring - The venture capitalist is able to provide strategic, operational and
financial advice to the company based on past experience with other companies in similar
situations.

iv. Alliances - The venture capitalist also has a network of contacts in many areas that
can add value to the company, such as in recruiting key personnel, providing contacts in
international markets, introductions to strategic partners and, if needed, co-investments
with other venture capital firms when additional rounds of financing are required.
4.DEVELOPING A TEAM OF ADVISORS

Starting your own business comes with so many ups and downs. You’re excited about
what the future will bring, but you are also worried about what happens when it actually
arrives. Success comes with many responsibilities and having a team of advisor by your
side will help you tackle many of the unknowns that entrepreneurship brings. Team of
advisors generally includes the following essential members;

4.1. Attorney

When you start a business, you are managing risk every day. Having a strong legal team
will help you identify vulnerabilities as well as address legal needs that you didn’t know
existed. Among other things, your legal team should help you with the following:

• Choosing business structure

• Licensing and complying with regulations
• Drafting legal documents
• Resolving disputes
• Business succession plans
• Ending business
• Implement tax saving strategies with the help of your accountant

4.2. Accountant

Accountants are trained in managing finances, keeping your business organized, and
performing strategic financial planning.

An accountant should be able to see your financial history, help with your payroll as your
company expands, and implement tax saving strategies for your business, help you
effectively plot areas of profit and loss, prepare and review your business’ financial
reports, building income statements and balance sheets. In short, your accountant could
save your money.

4.3. Insurance Advisor

Choosing the right insurance coverage will help you manage and reduce potential risks. A
knowledgeable insurance advisor can save you hundreds of dollars on your premiums as
well as save you thousands of dollars on potential risk.

Qualified agent understands the insurance market and can negotiate competitive policies
on your behalf. They can put together a comprehensive and cost-effective insurance
package for your business.
4.4. Financial Advisor

A financial advisor will consider opportunities to grow your wealth through equity and
debt investment strategies. Your financial advisor will develop an investment and
financial plan to help you accumulate wealth. Your financial advisor will also be able to
look at the big picture of your finances and will then help you invest strategically while
setting financial goals and priorities for your business. By collecting detailed information
about your financial health, your financial advisor will be able to provide you with advice
and help develop financial strategies on investing, retirement planning, succession
planning, risk management, insurance, and taxes.

4.5. Banker

In the course of starting your business, you will most likely open a business checking
account, and apply for financing through your local bank. Bankers are able to offer
advice on a range of banking products and help solve financial problems related to cash
flow. Your banker is the frontline to helping you obtain financing through your current
institution and helping you with your business needs. They get to grow with your
business and see firsthand how your finances are doing. It is important to establish open
communication so that your banker can assist in making the banking process seamless.