Business Enity
Essay title: Business Enity
The first step for the former three employees of the ChipeX, Inc. is writing a vision and scope document to present to the proposed project stakeholders. Unfortunately, it is not always immediately obvious who those stakeholders are going to be. However, in this scenario the former employees have identified venture capitalists that are willing to receive whatever financing is needed to manufacture the chip, provided they take 51% of the ownership interest.
Venture capital is capital provided by outside investors for financing of new, growing or struggling businesses (Wikipedia, 2006). Venture capital investments generally are high risk investments but offer the potential for above average returns. Venture capitalists are people who make such investments. A venture capital fund is a pooled investment vehicle, which is often for a partnership, which primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans (Wikipedia, 2006).
The idea and vision of the “New ChipeX, Inc.” should be:
1) Business Idea: to supply manufacturing businesses with the right competence, methods, technologies and development tools so that they them selves can develop new commercially successful new microchips to power the next generation of personal computers.
2) Vision: to begin manufacturing the chip within two years. Upon the success of the chip the expectation is within five years be a recognized expert institute in the area of product development and become a publicly traded company to be sold to investors.
The selection of the venture capitalists for the “New ChipeX, Inc.” will be general partners who may be former chief executives at firms similar to those which the partnership funds. Investors in venture capital funds are typically large institutions with large amounts of available capital, such as state and private pension funds, university endowments, insurance companies, and pooled investment vehicles. Other positions at venture capital firms include venture partners and entrepreneur-in-residence.
Venture capital is not suitable for many entrepreneurs. Venture capitalists are very selective in deciding what to invest in; a fund invests only in about one in four hundred opportunities presented to it. They are most interested in ventures with high growth potential, as only such opportunities are likely capable of providing the financial returns and successful exit event within the required timeframe that venture capitalists expect (Wikipedia, 2006). Because the “New ChipeX, Inc.” has provided an allotted time frame for their new microchip and has a solid vision and idea for the business, the venture capitalists should be eager in funding the company and ensuring the potential in succeeding their specified industry. Moreover, because of these potential opportunities, most venture funding goes into companies in the fast-growing technology and life sciences or biotechnology fields, such as the “New ChipeX, Inc,” due to these strict requirements; many entrepreneurs seek initial funding from angel investors. If a company does have the qualities venture capitalists seek such as a solid business plan, a good management team, investment and passion from the founders, a good potential to exit the investment before the end of their funding cycle, and target minimum returns in excess of 40% per year, it becomes much easier to get venture capital (Corporate, 2006).
Another starting point for any business is the choice of the legal entity for the specified company, which requires a careful evaluation and understanding of the proposed business, as well as its near and long term goals. This process includes a variety of considerations ranging from choice of jurisdiction, capital requirements, and financing structure to securities law compliance and regulations and prospective exit strategies.
The best business enitity for the