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Mortgage brokers make their voices heard

National Mortgage Professional
Jan 28, 2005

Mortgage broker 2000: Making money with venture capital transactionsFred Steinbergventure capital, qualifications, transactions Since entering the venture capital arena, many transactions have come across my desk. A great number of them often lack a minimum amount of information with which to decipher what the "deal" is all about. Brokers often know very little about what venture capital is, who qualifies for it, and the mechanics of transacting this income stream. Certainly, it is worth trying to accomplish, since the financial rewards are astronomical. There are many types of transactions that may qualify for venture capital, but the most important thing to know about this income stream is what does not qualify. Inventors with products are a long shot. The client with three dry cleaning stores in Ohio who would like to open three more in Michigan, or the company that provides janitorial services nationwide and wants to grow, may be potential deals to some people in the arena, but they too are long shots. Venture capitalists look for high-tech, medical, or a proprietary interest in a trademark, license, or patent. Usually, a proprietary interest in intelligentsia. For instance, a radar-tracking device for opthalmological lasers to enhance lasik surgery, or a microwave wand that can be used in a gynecologist's office to cortorize the interior of the uterus, thereby eliminating a hysterectomy. There are also transactions such as Internet companies and specialized high-tech devices in aerospace or computers. It can even be more specialized and become an investment in a company on the cusp of growth, poised to go public. The venture capitalist is looking for an existing income stream, with tremendous potential to become an even larger income stream. Most importantly, it is the potential a company has for great returns on investment that attracts the capital. Mechanically, these transactions begin with an executive summary, a short document detailing all the players, the company mission, something about the product or service, and the amount that the company is looking to raise. If the parties are interested in further pursuing the transaction, they will request a full, detailed business plan. The business plans are not the type where a client goes to Costco or Best Buy and purchases a computer program to put together his own plan. The plans that get attention are professionally detailed, and very often a consultant is hired over a period of time to actually construct the plan. It is important to note that this is an equity financial tool. A company must give up a portion of its stock so that the investor becomes a part-owner. Some owners don't like the idea of trading portions of their company for the funds, especially since the venture capitalist is considering an "exit" plan. The plan is typically to take the company public, thus liquidating further ownership. The alternative is borrowing the money, which is a debt instrument. In most cases, the companies needing venture capital do not have the assets, or the finances, to borrow the large sum of money they require. In some cases, the company has a burn rate, in which they are expending funds without income, and need an investment to cover the expense. For instance, a medical tool being tested by the FDA incurring costs will spend money while waiting to bring their product to market. Why should you enter this arena? The commissions are very high, one-time payoffs. A $5 million transaction-one of the more common sized transactions-can pay a point or two of the $5 million. It pays for the frogs you kissed until the prince appeared. Secondly, the only thing a broker has to do is request and submit an executive summary or full-blown business plan. No licenses are necessary, and the broker has nothing else they are required to do. Personally, I would not rely on this as my only income stream, but as for diversification, I wouldnt want to eliminate it either. Fred Steinberg is President of Express Business Funding. He may be reached by phone at (941) 945-3863 or by fax at (941) 945-2853.
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