Saturday, July 18, 2020

What Might Venture Capitalists Want to See When Investing in Delta County?

Venture capitalism and large investment funds can change a small towns economic trajectory from slowly declining into a prosperous town through greater access to investment capital. Like a diamond in the rough Escanaba and Gladstone can offer benefits for hedging portfolios for investment purposes. This can have be a boon for local businesses and entrepreneurs that desire to start businesses and take new businesses to a more global market. Yet without making the information Venture Capitalists need available it is unlikely these diamonds will be discovered.

According to a working paper from professors in the Graduate School of Business at University of Chicago, Lynde and Harry Bradley foundation and the Olin Foundation through grants to the Center for the Study of the Economy and State and the Center for Research in Security Prices....(total mouthful)........there is some interesting discussion on what type of information Venture Capitalists need to make investment decisions.

When information is readily available and easy to find it is going to increase the chances that investments are going to be found that would lead to improved business capital, growth and functioning. The more difficult that information is to find it means there are many opportunities that pass by without so much as a second look. There is a cost to not providing information to people actively scouring the market to improve their financial portfolios.

The article "How Do Venture Capitalists Choose Investments?" by  Steven N. Kaplan and Per Strömberg (2000)we can start to see some basic information Venture Capitalists need to make an investment decision:

-Market Size
-Customer Adoption
-The Management Team
-Potential deal terms.

There is likely more information they need to make decisions but those represent a few. Thus, if a company wants to attract investment they will want to show this information and make it easy to find.  Putting it on the company page, Chamber of Commerce, or other page designed to attract investments like the Down Town Development Authority may make a different.

We could use this strategy in other places as well. I'm not sure if there would be much of a difference for general calls for investment for the county and then specific calls for investment for businesses. The general and specific information may make a difference. Focusing on what investors need in annual reports and publications works well on the Internet where information is categorized and recalled via search engines.

I guess this is one of the reasons why counties sometimes create market analysis to show the lifestyle, incomes, and other demographics that would indicate that their location is the best place to start a business. From what I have seen they seem to be limited and miss the type of information really needed. Escanaba has a lot to offer but may not be sharing that information appropriately or making a commitment to change fully.

So I'm playing with the idea for my theory. If a place like Delta County Michigan and the Chamber worked with real estate firms to market the buildings to entrepreneurs, provided something like grants for improvement of the buildings (not sure what form yet), marketed to entrepreneurs that have some capital, provided low interest lows, local "advocate" that gets them into start-up stage, business plan help, providing information to investors on businesses in the area that want venture capital investment it could make a difference.

It seems there are a lot of things that could be done if we knew what direction to take. For now it appears that if we provide the right kind of information to investors and reached out to them highlighting businesses seeking additional growth capital we may be able to raise the amount of high paying jobs as well as draw in more investment into the area. I will need to write something more formal about this for my theory and then in turn put it together into some concrete action.

Kaplan, S. & Stromberg (Working Paper August 2000). How Do Venture Capitalists Choose Investments?

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