An Alternative to Venture Capital Funding – Give Control to the Company

Using Reverse Mergers Instead of Venture Capital for Venture Funding

The more you look at reverse mergers the more you start to understand that reverse mergers compare favorably with the classic venture capital model for venture funding.

Venture funding is obviously key to the success of any new or growing venture. The classic venture capital model seems to work like this: The entrepreneur and his team formulate a business plan and try to get it in front of a venture capital firm. If they are well connected, they may succeed, but most venture capital firms are overloaded with funding requests.

If the entrepreneur is not in a business that is the latest fad among venture capitalists, he may not be able to find funding.

If the entrepreneur is very lucky, he will be invited to pitch the VC. If the venture survives this trial, it will receive a venture capital terms sheets. After prolonged and adversarial negotiations, a deal is struck and the venture company signs hundreds of pages of documents. In these documents, the entrepreneur and his team give up most of the control of the company and usually most of the equity in the deal. Their stock is locked up and if they want to sell to get some cash, they probably have to offer the buyer to the VC first. Time from start to finish – 90 days or more.

If the company needs more money, it must negotiate with the VC and the entrepreneurial team may lose ground in the deal. The company may have to reach certain set milestones to get funds. If the company falls behind of schedule, it may lose equity share.

As the venture develops, the venture capitalists may or may not add value, and most likely will second-guess the entrepreneur and his team. If the venture succeeds, the venture capital firm will reap most of the rewards. If the venture does not succeed, most of the capital will be lost forever. Some ventures wind up in the land of the living dead – not bad enough to end, not good enough to succeed.

Worst case scenario, the venture capitalists take control at the outset, become dissatisfied with management, and oust the original management which loses most of not all of their position and their jobs.

The Reverse Merger Model

The entrepreneur finds a public shell. He has to come up with some cash to do this and pay the legal and accounting bills.

He buys control and merges into the shell on terms he determines. He keeps control but he has the burdens of a public company.

He determines how to run his company, including salaries. He can offer stock options to attract talent. He can acquire others companies for stock. He determines when he cashes out.

Instead of having to report to the venture fund, he has to report to the shareholders.

Subject to the limitations of the securities laws, he can sell part of his stock for cash.

He can seek money whenever he wants; he is in control.

Problems: He may be attacked by short sellers. He may buy a shell with a hidden defect. He has to pay for the shell.

From the Investors’ Point of View

Venture capital funds are typically funding by institutional investors seeking professional management. They do not have the time to manage a number of small companies and delegate this task to the venture capital partners. Small investors are rarely permitted. Venture capital funds allow the institutional investors to diversify.

Venture capital fund investors are locked in over a period of years. If they make 30% per year returns, they have done very well.

The venture capital model encourages the venture capital firm to negotiate hard for a low price and harsh terms. A venture team seeking funding that knows it has a big future may not submit to such terms. However, for a weak company that is just looking to collect salaries for a few years before folding, in other words a company that is a bad investment, can accept any terms, no matter how harsh. Thus, the venture capital model is skewed toward selecting out the worst investments and repelling the best.

Small investors can buy stock in reverse merger companies. They must take the time to investigate these companies but may lack the resources to do so intensively. Most small investors lose money. If they win, they can win big. They can, if they choose do so, diversify their investments. They have no influence on management, except to sell when they are displeased.

Summary

The reverse merger model compares very favorably with venture capital. Whereas venture capital is perpetually in scarce supply, reverse mergers are always out there for any company that can interest investors. The company can usually raise money on better terms from the public than from venture capitalists.

Overall, the big advantage of the reverse merger is that the company has total control over its destiny. The team can be assured of being rewarded well for success. The company sets the terms, can sell stock whenever it sees fit on whatever terms it merits, the insiders can sell too, and the venture team is not second-guessed by amateurs in their field, and the venture team does not have to fear losing equity or jobs.

Another advantage is less risk to the investor. The investor is in a publicly trading stock. If the investor does not like what is happening, he can sell. He may sell at a loss, but he can get out. The investor can also pick and choose companies himself, instead of making only one investment decision – the decision to back the VC company which then takes control of the rest of the decisions.

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Top 3 Things You Should Do Before Choosing Your Private Label Olive Oil Supplier

There are many reasons why people are ecstatic about creating their own product line of olive oil.

One reason is its growing market. As people become more aware of the benefits brought by it, the demand is steadily increasing. The fact that you can find olive oil as an ingredient in almost any healthy product, any entrepreneur would really be tempted to join the industry.

Another reason is passion. Health gurus and beauty bloggers are just a few of the people who love olive oil, and incorporating their passion into their business is never a bad idea, right?

So before you start choosing and calling your private label olive oil supplier, here are the top three most important things you should do first:

Study the Market

Regardless if you already own a business or are just starting up, you should study first your target marketplace.

Who would possibly buy it? Can your market afford to purchase extra virgin olive oil? The best customers are those who won’t mind paying a high price as long as the product is worth it. But this is not the only factor you should consider.

Price Competition

Knowing the current prices on the market will serve as your guideline in choosing the right supplier in terms of the pricing of bulk orders.

You can also determine how much profit you can gain, and how competitive you can be in the market. More importantly, since you are creating a privately labeled line, make sure that your price can compete with the branded ones.

Qualify the Suppliers

Truth is, the olive oil industry is quite a small niche, so you will want your product to stand out.

Basically, you can really stand out if you choose the right packaging. Packaging includes the style of the bottle, how much of it you want in a single bottle, and also, the creativeness of the whole packaging concept.

But the question is, can the manufacturer achieve this kind of packaging?

There are a lot of suppliers, but if you think that you can just pick the right one up easily, think again. The right supplier should, above all, catch up on your vision for your products.

For example, the best private label olive oil supplier are those who have sample packages ready but also welcomes their clients’ ideas and desired characteristics. There are even companies that will send a virtual sample for their clients to see how their order will look like. This kind of flexibility gives ultimate freedom for the clients to own their product.

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