Venture Capitalists Investing in Later Stage Businesses

Venture capitalists are increasingly looking for established companies to invest in, the "New York Times" reported. For the first half of 2006, 46 percent of first-time venture investments went into established companies - three years or older, and with established revenue streams - up from 30 percent in 1995, according to the National Venture Capital Association. Reasons for the trend include a sluggish market for initial public offerings, and the ability of cash-laden venture capitalists to put more money to work in larger, more established firms.

Last October I helped an entrepeneur finish his business plan over a two week period, for a new medical device that had vastly better technology and ergonomics than what was currently in the market. He was looking for $2 million to stage the introduction. I just got a call from him, this past June, that he was close to securing financing....nine months later. If the trend of venture capitalists looking for more established companies continues, situations such as this will become even more common in the years to come. -- dr

SCORE Honors Six NY Small Business Successes

On Tuesday July 25th, the New York chapter of SCORE, Counselors to America's Small Business, presented awards to the founders of six successful small businesses: Lisa and Felix Hendrickson of Hendrickson Custom Cabinetry, Peggy Levee of Rain or Shine (tent rental), Caylin Sanders of EscapeMaker.com, the founder of The Pink Slip, Carl Broady of Urban Biker Magazine and David Rudofsky of Rudofsky Associates. For a full list of previous SCORE successes, go to: http://www.score.org/success_story_archive.html

My SCORE counselor was the one who suggested the name Rudofsky Associates, and also gave me great advice on how to network with other independent consultants and grow my consulting practice. Interestingly, most of the other awardees needed assistance from SCORE in the areas of business planning and financing, as opposed to marketing. SCORE has a strong affiliation with the Small Business Administration, which gives them deep insights into how new business owners should apply for SBA-backed loans. -dr

Prosper Marketplace Inc. Boosting Peer-to-Peer Lending

Since its start-up in February, 2006, San Francisco-based Prosper Marketplace Inc. has brokered more than 1,800 loans between individuals, totaling about $7.7 million, the "Wall Street Journal" reported in its 7/24/2006 issue. The company says the proportion of lenders to borrowers has exceed their initial expectations. Lenders are being attracted by interest rates as high as 29%, while for some borrowers with bad credit, Prosper Marketplace helps them get a loan that was not available through more convention channels.

Prosper's revenue model is to earn 1.5% in fees for each loan, 1% from the borrower, and 0.5% from the lender. So the total revenue earned by Prosper on the initial $7.7 million loaned is just a shade over $100,000. The company has raised $20 million so far from venture-capital funds, so it will be interesting to see how they can use that capital to grow their business. -dr

Kiva Providing a New Source for Small Biz Finance

Kiva.Org was started as an experiment by Stanford Business School students Matt Flannery and Jessica Flannery after they traveled to East Africa to review projects for the microlender Village Enterprise Fund. As reported by "Business Week's" July 31, 2006 issue Kiva has made virtual neighbors out of strangers half a world apart, and facilitated 450 microloans, totaling $200,000, since the site's inception in March, 2006. The loans have helped small business owners from Honduras to Uganda start-up small businesses, and so far there have been no loan defaults.

According to an "INC Magazine" study of successful entrepreneurs, 55% used personal savings to finance the start-up of their businesses, 6% used charge cards, 7% used bank loans and mortgages. 13% friends and family loans, 6% relied on angel investors, 4% relied on venture capital funding, leaving 12% who obtained funding from all other sources. Many of the most typical sources are simply not available to people living in developing countries, who therefore stand to benefit the most from Kiva. This is a trend that certainly bears watching. -dr

Internet Retailers' Marketing Spending Way Up in 2005

Web-based retailers tripled their marketing spending as percentage of revenue, to 18% in 2005, from 6% in 2004 according to a report by market research firm Forrester Research and Shop.org, the "Wall Street Journal" reported on 6/19/2006. The increase was driven in part by competition from traditional "multi-channel" merchants according to the report.

Of course, spending competition for Google AdWords is an added factor! Entrepreneurs planning the start-up of any new business typically have a hard time deciding how much to budget for marketing spending. For those who are considering new web-based retail businesses, getting the budget right is becoming even more critical. It is nice to be Amazon, with the #15 ranked website, and spending only $199 million in marketing on $8.5 billion of sales in 2005, a spending rate of less than 2.5%. -dr