Pre Employment Screening Articles

The words, “venture capital,” are used quite frequently in discussions of entrepreneurial finance, but to different people, they mean different things. It is essential that the first-time entrepreneur knows the differences and uses the term correctly. But “venture capital” is a generic term that the man-on-the-street uses to describe all forms of private equity that might be invested, on some basis, in privately held, smaller firms. Quite often, the person using this term is referring to angel, or individual investors.

Private equity investing may broadly be defined as investing in securities through a negotiated process. It entails providing equity capital to develop new products and technologies, to increase working capital, to make strategic acquisitions, or to strengthen a company’s balance sheet. Venture capital is a subset of the larger private equity asset class. The private equity asset class includes venture capital, buyouts, and mezzanine investment activity. Venture capital focuses on investing in private, young, fast growing companies. Buyout and mezzanine investing focuses on investing in more mature companies.

“VENTURE CAPITAL” is professionally managed investment capital targeted for new and emerging companies in which investments have the potential to yield extraordinary returns. Venture capitalists are professional investors who specialize in funding and building young, innovative enterprises. Venture capitalists are long-term investors who take a hands-on approach with all of their investments and actively work with entrepreneurial management teams in order to build great companies.

So what’s the difference between a bank and a venture capitalist? Banks provide term loans and working capital to companies. The company has to make interest payments and pay back the principal within a stipulated timeframe. In comparison a VC subscribes to the equity shares of a company for a stake in the company at a negotiated valuation.

What does a Venture Capitalist look for?

Venture capitalists are higher risk investors and, in accepting these higher risks, they desire a higher return on their investment. The venture capitalist manages the risk/reward ratio by only investing in businesses that fit their investment criteria and after having completed extensive due diligence on each candidate.

Venture capitalists have differing operating approaches. These differences may relate to the location of the business, the size of the investment, the stage of the company, industry specialization, and structure of the investment and involvement of the venture capitalists in the company’s activities. The entrepreneur should not be discouraged if one venture capitalist does not wish to proceed with an investment in the company. The rejection may not be a reflection of the quality of the business, but rather a matter of the business not fitting with the venture capitalist’s particular investment criteria.

Venture capital is not suitable for all businesses, as a venture capitalist typically seeks:

Superior Businesses
Venture capitalists look for companies with superior products or services targeted at fast-growing or untapped markets with a defensible strategic position. Alternatively, for leveraged management buyouts, they are seeking companies with high borrowing capacity, stability of earnings and an ability to generate surplus cash to quickly repay any outstanding debt.

Quality and Depth of Management
Venture capitalists must be confident that the firm has the quality and depth in the management team to achieve its aspirations. Venture capitalists seldom seek managerial control; rather, they want to add value to the investment where they have particular skills including fundraising, mergers and acquisitions, marketing and networks.

Corporate Governance and Structure
In many ways the introduction of a venture capitalist is preparatory to a public listing. The venture capitalist will want to ensure that the investee company has the willingness to adopt modern corporate governance standards, such as non-executive directors, including a representative of the venture capitalist. Venture capitalists are put off by complex corporate structures without a clear ownership and where personal and business assets are merged.

Appropriate Investment Structure
As well as the requirement of being an attractive business opportunity, the venture capitalist will also be seeking to structure a satisfactory deal to produce the anticipated financial returns to investors.

An Exit Plan
Lastly, venture capitalists look for clear exit routes for their investment such as public listing or a third-party acquisition of the investee company.

Stages in the Venture Capital Investment Process

A recurring theme throughout this series of articles has been to encourage you to make the most efficient use of your time. In fund raising, that means only pursue sources that are viable providers of capital to you. The corollary to that is you need to understand the investment objectives of the investors you approach and make sure that the investment you pitch to them is something in which they are interested.

For you to do this with regard to VENTURE CAPITAL, you need to understand what makes them tick. I hope to provide you with some of that insight in this month’s column.

Let’s look at a typical activity sequence for a professional venture capital firm. (To more sophisticated readers, I apologize in advance for this oversimplification). A VC firm will create a ten-year limited partnership with the venture capital firm as the general partner. Raise money from investors. [Yes, just like you, a venture capitalist is an entrepreneur who needs to raise money.] Invest the capital in opportunities that meet its investment criteria, AND pass the internal approval process. Work with the portfolio companies to help them build value and move them toward an attractive exit. Achieve exits when possible and distribute the proceeds to its investors. And finally, do it all again.

Once the appropriate investment opportunity is identified, the following process outlines the typical deal flow stages.

Deal Origination in which potential investments come to the attention of venture capitalists.

Screening is a step in which the venture capitalist reaches an initial decision to investigate further the investment (or not). The initial screen is a cursory glance at the business plan to determine whether or not the proposal fits within the investor’s areas of expertise. If warranted, the investor reads the plan more thoroughly as part of the generic screen to assess potential of the product or idea to obtain first impressions of management.

Evaluation, during which the venture capitalist conducts a detailed analysis of the venture. Criteria that venture capitalist apply are:

- Assessment of concept;
- Assessment of the principals; and
- Assessment of returns.

Due Diligence, if warranted, is the second phase of the evaluation step. This step may include formal market studies, reference checks, consultation with third parties. The investor outlines basic contract terms and discusses pricing. Your ability to respond quickly and completely to due diligence inquiries and to complete disclosure schedules and other required documentation, will largely dictate the timetable for closing.

Negotiation is a step in which the investor and the principals iron out the framework for a deal. The deal closes once the parameters are acceptable to both parties.

Post-investment activity relates to how the venture capitalist monitors the firm and takes part in major decisions. This phase largely involves monitoring, control, and intervention only as needed. Many entrepreneurs and managers of closely held companies run their businesses on a rather autonomous basis and are not used to gaining consensus. If you close a VC transaction, you’ll be expected to adhere to established and regular reporting and oversight functions. This will likely include monthly information gathering and sharing, submitting specific tracking reports showing the company’s progress concerning agreed development milestones and many times quarterly board meetings.

Tips to Improve Chances of Securing Venture Financing

Do define the business clearly.

In particular, identify the “competitive advantage” that the product or service embodies. This attribute is what makes the business opportunity unique and provides the edge over the competition. Exclusivity by means of copyright or patent is useful.

Do identify clearly the target market for the product or service and present the marketing strategy that supports financial projections.

The marketing strategy should stress how the product or service will provide a value added benefit to the purchaser. The findings of independent market research should provide further reasoned estimates of the market potential and penetration.

Do demonstrate a thorough understanding of the industry sector in which the product or service will compete.

Show the investor that you have a position in the industry conducive to rapid growth.

Do outline the management abilities of the business’ principals.

These capabilities should demonstrate proven marketing expertise and fiscal responsibility. VC’s generally subscribe to the view that they don’t invest in companies or products, they invest in people. Emerging companies should have in place a well-planned and implemented compensation scheme whereby key management is rewarded based on the successful growth and development of the business. In addition, you should be prepared to identify the key employees who will be critical to the investment transaction and/or the company’s continued success.

Do outline a proposed financial framework for the deal.

The business plan presented to a venture capitalist should specify the financial return, identify sources of risk, make provision for profitable exit, and propose how to structure the deal. Depending on risk, venture capitalists expect the value of their investment to grow from fivefold (for low risk firms) to twenty-fold (for high risk firms). The business plan should identify how to include other investors, if any, in the deal.

Don’t advance market projections that are unrealistic.

One reason venture capitalists specialize is to develop expertise in given sectors. Investors have a good sense of what constitutes a realistic market forecast. The best defense against this error is to provide projections or strong historical facts based on independent market research.

Don’t ignore sources of risk and uncertainty.

All businesses are subject to external uncertainty and have internal shortcomings. Show the investor that you recognize such risks and that you have developed contingency plans to address them.

Advantages of Venture Capital

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

Finance
-The venture capitalist injects long-term equity financing, 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.

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.

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.

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.

Facilitation of Exit
-The venture capitalist is experienced in the process of preparing a company for an initial public offering (IPO) and facilitating in trade sales.

Karl Buettner (610-560-4700 x 101) is a partner and Christopher Jansen (610-560-4700 x112) is a Managing Director at Gatehouse Ventures, LP.
Gatehouse Ventures, LP, is a private equity firm specializing in leveraged buyouts and leveraged buildups in partnership with qualified management teams. Gatehouse focuses on companies with market values between $5 - $20 million and where our principals can leverage their expertise to drive value for our partners.
For more information, please visit: www.gatehouseventures.com

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Workplace violence is increasing worldwide, reaching epidemic levels in some countries, according to a new publication by the International Labour Organization (ILO).

The global cost of workplace violence is enormous and costing untold millions of dollars in losses in other countries due to causes including absenteeism and sick leave, the study states.

The study also notes that professions once regarded as sheltered from workplace violence such as teaching, social services, library services and health care are being exposed to increasing acts of violence, in both developed and developing countries.

The study, Violence at work, Third edition, was conducted by Vittorio Di Martino, an international expert on stress and workplace violence, and Duncan Chappell, past president of the New South Wales Mental Health Review, Australia, and the Commonwealth Arbitral Tribunal, United Kingdom.

“Bullying, harassment, mobbing and allied behaviors can be just as damaging as outright physical violence,” the authors state. “Today, the instability of many types of jobs places huge pressures on workplaces, and we’re seeing more of these forms of violence.”

In addition, the authors also address growing concerns about terrorism, calling it “one of the new faces of workplace violence — contributing to the already-volatile mix of aggressive acts taking place on the job.”

A 2000 survey of the then-15 member states of the European Union showed that bullying, harassment and intimidation were widespread in the region. In Germany, a 2002 study estimated that more than 800,000 workers were victims of mobbing, i.e. a group of workers targeting an individual for psychological harassment. In Spain, an estimated 22 percent of officials in public administration were victims of mobbing. In France, the number of acts of aggression against French transport workers, including taxicab drivers, rose from 3,051 in 2001 to 3,185 in 2002.

In Japan, the number of cases brought before court counselors totaled 625,572 between April 2002 and March 2003. Of these, 5.1 percent, or almost 32,000, were related to harassment and bullying, whereas, from April to September 2003 there were 51,444 consultations requests, 9.6 percent concerning bullying and harassment.

In developing countries, the most vulnerable workers include women, migrants and children, according to the report. In Malaysia, 11,851 rape and molestation cases at the workplace were reported between 1997 and May 2001. Widespread sexual harassment and abuse were major concerns in South Africa, Ukraine, Kuwait and Hong Kong, China, among others, the report states.

In South Africa, workers in the health care sector bear the brunt of workplace violence, according to the study. Over one 12-month period, a survey showed 9 percent of those employed in the private health sector and up to 17 percent of those in the public sector experienced physical violence.

On a more positive note, the study cited improvements in England, Wales and the United States. In England and Wales, the estimated 849,000 incidents of workplace violence in 2002-2003, including 431,000 physical assaults and 418,000 threats, represented a decline from 1.3 million such incidents cited in a previous survey. In the United States, where homicide is the third leading cause of death at work, the number of workplace murders has declined in recent years, with a similar trend for non-fatal assaults. The report states that women represent approximately 61 percent of all victimized workers because of their concentration in jobs considered high-risk for assault.

Growing awareness of the need to tackle workplace violence has spawned the development of new and effective prevention strategies, ILO states. The study highlights a number of “best practice” examples from local and national governments, enterprises and trade unions from around the world that have successfully implemented “zero tolerance” polices and violence-prevention training programs.

Several countries have now explicitly recognized violence in their national occupational health and safety legislation. Argentina, Belgium, Canada, Finland, France, Poland and Sweden have recently adopted new legislation or amended existing laws and regulations to address violence at work.

The ILO also has adopted a number of fundamental conventions on worker protection and dignity at work. In 2004, the ILO Code of Practice, Workplace violence in services sectors and measures to combat this phenomenon, was published to address the extent and severity of workplace violence in various service sector industries. In addition, the ILO, along with partners at the International Council of Nurses, World Health Organization and Public Services International, have developed framework guidelines to combat workplace violence in the health sector.

For more information, contact ILO at http://www.ilo.org.

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Seven Florida men have been arrested on charges that include conspiring to provide material support to the al Qaeda terrorist organization and conspiracy to levy war against the United States by discussing and planning attacks on targets in the United States, including the Sears Tower in Chicago and the FBI building and other federal buildings in Florida, the Department of Justice announced today.

The seven men - Narseal Batiste, Patrick Abraham, Stanley Grant Phanor, Naudimar Herrera, Burson Augustin, Lyblenson Lemorin and Rothschild Augustine - were named in an indictment returned by a federal grand jury in the Southern District of Florida (Miami). The indictment charges four counts: conspiracy to provide material support to a foreign terrorist organization, namely al Qaeda; conspiracy to provide material support and resources to terrorists; conspiracy to maliciously damage and destroy by means of an explosive; and conspiring to levy war against the government of the United States.

The defendants - five U.S. citizens, one legal permanent resident, and one Haitian national in the country illegally - have all been arrested and are expected to make appearances at U.S. District Court in Miami today.

The indictment alleges that, beginning in November 2005 and continuing to the present, Bastiste recruited and supervised individuals to organize and train for a mission to wage war against the United States, including a plot to destroy the Sears Tower by explosives. Batiste and his co-conspirators allegedly attempted to obtain the support of al Qaeda to achieve their goals and discussed this desire with an individual cooperating with law enforcement who posed as a member of al Qaeda. Believing they were dealing with that terrorist group, in March 2006, Batiste and other defendants pledged an oath of allegiance to al Qaeda and allegedly supported a plan to destroy FBI buildings in the United States by taking photos of the FBI Building in North Miami Beach, Florida, and other federal buildings in Miami-Dade County.

Batiste then allegedly took reconnaissance photographs of the FBI Building in North Miami Beach, the James Lawrence King Federal Justice Building, federal courthouse buildings, the Federal Detention Center and the Miami Police Department. In addition to conducting surveillance, the defendants allegedly provided the individual, whom they believed was an al Qaeda member, with a list of materials and equipment needed to wage jihad, including boots, uniforms, machine guns, radios and vehicles. In December 2005, at one of a number of meetings with this person, Batiste spoke of using an army of “soldiers” and explosives to destroy the Sears Tower. In a subsequent meeting, he provided the individual with a list of other materials needed in his plot to take down the Sears Tower, including radios, binoculars, bullet proof vests, firearms, vehicles and $50,000 cash.

According to the indictment, the plot advanced further through meetings with other co-defendants. In one of the meetings on Feb. 19, 2006, Batiste allegedly told the “al Qaeda representative” that he wanted to attend al Qaeda training with five of his soldiers, with a mission to wage a “full ground war” against the United States in order to “kill all the devils we can,” which “will be just as good or greater than 9/11.” Ultimately, all seven of the defendants allegedly swore bayat, or an oath of loyalty to al Qaeda.

“The convergence of globalization and technology has created a new brand of terrorism. Homegrown terrorists may prove to be as dangerous as groups like al Qaeda,” said Attorney General Gonzales. “I am pleased by the cooperation among federal, state and local law enforcement in taking down this group of individuals who wished to harm our country and its citizens.”

U.S. Attorney R. Alexander Acosta of the Southern District of Florida stated, “Batiste and his group had the intent and took several steps toward fulfilling their plan of blowing up the Sears Tower and the Miami FBI building. They were never able to obtain, however, the explosives or access needed to implement their plan. The South Florida Joint Terrorism Task Force successfully performed its mission to prevent terrorism by identifying, disrupting and prosecuting these individuals before they posed an immediate threat to our nation.”

FBI Deputy Director John S. Pistole said, “Today’s announcement marks yet another important victory in the war on terrorism. It is also, however, a grim reminder of the persistent threat environment that exists here at home and underscores the need for continued vigilance and cooperation. I’d like to commend all the members on our Joint Terrorism Task Forces who work tirelessly day and night to interdict these threats and hold accountable those who seek to inflict harm on the U.S.”

If convicted, the defendants in this case face a maximum penalty of 15 years each in prison on the charges of conspiracy to provide material support or resources, and a maximum of 20 years in prison each on the charges of conspiracy to destroy by use of explosives and conspiracy to levy war against the United States.

The arrests are the result of an investigation led by the FBI’s South Florida Joint Terrorism Task Force (JTTF) in Miami. The JTTF is comprised of federal, state and local law enforcement agencies whose primary work is to identify and disrupt terrorist cells before they commit acts of terror. Members of the JTTF include the U.S. Attorney’s Office for the Southern District of Florida; the FBI; U.S. Immigrations and Customs Enforcement; U.S. Secret Service; the Bureau of Alcohol, Tobacco, Firearms and Explosives; the Internal Revenue Service; the Bureau of Prisons; the Florida Department of Law Enforcement; Miami Dade Police Department; City of Miami Police Department; Broward Sheriff’s Office; Palm Beach County’s Sheriff’s Office; Ft. Lauderdale Police Department; Hollywood Police Department; and the Miramar Police Department.

The case is being prosecuted by Assistant U.S. Attorneys Jacqueline Arango and Richard Getchell of the U.S. Attorney’s Office for the Southern District of Florida.

The FBI encourages the public to report any suspected violations of U.S. federal law. You can do so by calling your local FBI office, Legal Attache office, or by submitting a tip via the FBI Tips and Public Leads form https://tips.fbi.gov/

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http://www.usdoj.gov/opa/pr/2006/June/06_ag_386.html

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