How do venture leasing firms evaluate transactions' Venture lessors look closely at several factors. Two of the main ingredients of a successful new venture are the caliber of its management team and of its venture capital sponsors. In many cases the two groups seem to find one another.
A good management team has usually demonstrated prior successes in the field in which the new venture is active. The better venture capitalists have successful track records and direct experience with the types of companies they financed. The best VCs have industry specialization and many employ individuals with direct operating experience within the industries they finance.
After determining that the caliber of the management team and venture capitalists is high, a venture lessor looks at the startup's business model and market potential. During this evaluation the lessor considers questions such as:
Does the business model make sense'
Is the product/service necessary'
Who is the targeted customer and how large is the potential market'
How are products and services priced'
What are the projected revenues'
What are the production costs and what are the other projected expenses'
Do these projections seem reasonable'
How much cash is on hand and how long will it last the startup according to the projections'
When will the startup need the next equity round'
These, and questions like these, help the lessor determine whether the business plan and model are reasonable
The most important question facing a leasing company financing startups is whether there is sufficient cash on hand to support the startup through a significant part of the lease term.
If the venture is unable to raise additional capital and runs out of cash, the lessor stands to lose money on the transaction.
To mitigate this risk, most experienced venture lessors require that the startup have at least nine months of cash on hand before proceeding. Usually, startups approved by venture lessors have raised at least $ 5 million in venture capital and have not yet exhausted a healthy portion of this amount.
George Parker is a Director and Executive Vice President of Leasing Technologies International, Inc. ('LTI'), responsible for LTI?s marketing and financing efforts. A co-founder of LTI, Mr. Parker has been involved in secured lending and equipment financing for over twenty years. Mr. Parker is an industry leader, frequent panelist and author of several articles pertaining to equipment financing.
Headquartered in Wilton, CT, LTI is a leasing firm specializing nationally in direct equipment financing and vendor leasing programs for emerging growth and later-stage, venture capital backed companies. More information about LTI is available at: http://www.ltileasing.com.
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