Kaiwen Leong - Venture Capital: How to Raise Funds for Your Business

HOW TO RAISE FUNDS FOR YOUR BUSINESS

KAIWEN LEONG, WENYOU TAN AND ELAINE LEONG

2014 Marshall Cavendish International (Asia) Private Limited

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National Library Board, Singapore Cataloguing-in-Publication Data

Leong, Kaiwen.

Venture capital : how to raise funds for your business / Kaiwen Leong, Wenyou Tan, Elaine Leong. Singapore : Marshall Cavendish Business, 2014.

pages cm

ISBN : 978-981-4561-00-6
eISBN: 978 981 4561 93 8

1. Venture capital. I. Tan, Wenyou. II. Leong, Elaine. III. Title.

HG4571

332.04154 dc23 OCN 879150244

Printed in Singapore by Fabulous Printers Pte Ltd

Disclaimer

The case studies presented book are based on the authors encounters with real companies. However, certain details have been changed or omitted to protect the identity of these companies.

As venture capital fund managers, we have seen thousands of proposals but have only invested in a handful. Out of those, only a select few will go on to become real winners in the business world. That is how things are in the world of venture capital. You filter out the cream of the crop, help them grow, and if they succeed then the rewards are fantastic.

However, it is challenging to start a business and many do not succeed, so we have to be especially stringent in our evaluation process. Unfortunately, this means that we have had to crush many dreams along the way. There were countless times when we had to show a crestfallen entrepreneur to the door or deliver disappointing news over the phone. Many of them would ask what they had done wrongly or how they could have been better.

Thats not all. It is challenging to run a business and only a small fraction of the ones who survive the evaluation and put their funds to use will succeed. Many will hit unanticipated obstacles, like unfavourable government regulations, problematic expansion plans or poor leadership. Whatever it is, time and time again, many entrepreneurs who had poured their energies into their businesses go back empty-handed. These same entrepreneurs sacrificed time and money, and still failed.

This happens on both the macro (during the monitoring process) and micro levels (on the board of companies that we invest in). We wish that new entrepreneurs could see what we had and learn from the mistakes of those who failed. Unfortunately, such learning usually only comes through experience and that valuable experience is often not shared.

In penning this book, we kept in mind the entrepreneurs who had the potential but lacked proper guidance. There are many books on entrepreneurship but a good one must possess three important qualities:

Highlight the basic but nevertheless important details. Many books are written by industry veterans and experts, for whom the lessons and material presented are knowledge they already know. They do not need to be shown how to do the basicsestimating market size, attending start-up conferences or understanding the motivations of a venture capitalist. These are easy to do and extremely important. Many entrepreneurs stumble at this first challenge, so this book assumes the reader has little prior knowledge and will explain the every little detail along the way, from signing up for conferences to maintaining a good relationship with the venture capitalist.

Include insiders secrets and be backed by real life experiences. While nothing beats first-hand experience, learning from others is the next best thing. Why did they fail? What are the stumbling blocks to avoid? This book includes case studies based on an actual entrepreneurs, which provide insight into what really happens to start-ups. You dont just become a billionaire overnight. Ninety-nine percent of startups will not receive venture capital funding and you do not want to be part of that group. To avoid that, you have to avoid the mistakes and be better. Catchy frameworks for success telling you to implement golden strategies to rise to the top will not help if you also commit deadly mistakes at the same time. So this book will teach you how to succeed by showing you how not to fail.

Let you in on the mindset of a venture capital fund manager. Venture capitals are like individuals because they are run like individuals. You need to understand their thought processeswhat they prioritise, what the deal breakers are and what happens behind the scenes.

As you progress in your entrepreneurial journey, there are three types of finance books that you should refer to, with varying degrees of applicability depending on your needs.

Beginners Guide. This is created for newbies. You do not need prior knowledge for the most basic steps will be explained. Since beginners usually lack experience, these books will include case studies to illustrate practical lessons from the industry.

Supplementary Reader. This is an additional tool to add to existing knowledge. Such books are written for those who want to learn more specialised skill, and may be more technical, featuring fancy graphs and formulae. These may also gloss over the basic details as they assume the reader already has a good foundation. So beginners sometimes get lost if they begin here.

Academic Textbook. This book is written by professors with decades of research experience and contains layers upon layers of information. The intended readers for this book tend to be those in academia so the content is jargon heavy and delves deeply into complex topics. Unless you are an expert, you will either have to rely on someone to teach you the material or spend time trying to decipher each sentence.

This book falls along the beginners end of the spectrum. It caters to those who are new to venture capital, unfamiliar with technical terms and jargon and not very experienced in running a business. The structure is very much like a three-course menu: