Private Equity

How start-ups become the “Next Big Thing”

lightbulb$ Everybody has heard the stories of  “That Guy.” He had an idea of the plastic fork;  He invented Velcro; He bought into Solo disposable cups, etc.  The fact is that these ideas, and ultimately the opportunity to get involved financially, are around us every day. You probably experience it yourself–had a personal idea, but never acted on it or didn’t know how?

The truth is that you have to be open to these ideas. Surprising, that is how virtually every company that has ever existed or ever will exist started. All companies started the same way–with an idea.  Trail blazers have it tough, and it’s not always pretty from the beginning. Imagine the looks that people gave Henry Ford as his noisy contraption came rolling down the street? This replaces the horse and buggy? Are you crazy?

brickcellphoneI can remember when I bought my first hand-held cell phone, otherwise known as “the Brick.”  It weighed 20 pounds, the battery lasted for two hours and you had to be next to a window for it to work. It also cost $750 US  (in 1985).

Remember the first PC computers?  Gigantic.  Remember, it’s not just the unique solutions that these innovators brought to the table; they all had competitive.

How some of the world’s most successful companies started:

  • Ford: Founded in 1901. Competitive advantage: recognized as the innovator for large-scale manufacturing, and large-scale management. First to utilize the assembly line to make large amounts at a cheaper price. Founded with 12 original investors and $28,000 and an old converted MACCLASSICgarage. In the beginning, they made 3 cars a day.
  • Apple: Founded 1976. Started with 3 people (Steve Jobs). Banks were reluctant to lend Jobs money; the idea of a computer for ordinary people seemed absurd at the time. Jobs eventually met Mike Markkula, an investor… who co-signed a bank loan for US$250,000, and the three formed Apple Computer on April 1, 1976. Competitive advantage: Credited for creating the home computer. On December 12, 1980, Apple launched the Initial Public Offering of its stock to the investing public. When Apple went public, it generated more capital than any IPO since Ford Motor Company in 1956 and instantly created more millionaires (about 300) than any company in history. Several venture capitalists cashed out, reaping billions in long-term capital gains. Long-term in this case was 3 years.
  • Google: The first funding for Google as a company was secured on August 1998 in the form of a $100,000 USD contribution from Andy Bechtolsheim, co-founder of Sun Microsystems, given to a corporation which did not yet exist. It started as a research project by two college students.
  • Facebook: The social networking service launched in February 2004. You know the story–the company was started in a dorm room for pennies.

What do all these companies have in common?

All these aspiring entrepreneurs needed seed capital for their ideas and companies. Seed capital can come in the form of debt or equity. Although debt is almost always cheaper and less expensive than equity, approximately 4/5 business owners use some form of debt to fund their businesses–even if it’s something as small as credit cards. Opportunities are around all of us every day. These opportunities, under any business environment, will never find funding through traditional sources such as banks. They will be financed by an entrepreneur investor who can identify the opportunities, secure a ground floor space and help nurture these companies along.

In order to make that happen, someone who is an expert (and only an expert) must do this:
Screen opportunities, conduct due diligence, and conduct ongoing oversight.

This is an invaluable process. Why wouldn’t anyone not like to have a partner like this?  I have no doubt that all the companies mentioned above partnered with investors who followed this or a similar success determination process.  The best investors look for game-changers. Period, end of story.  As President of  Grace Century FZ LLC, I’m  always looking for the next big thing–the next game-changer and tomorrow’s winners today.

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2 thoughts on “How start-ups become the “Next Big Thing”

  1. Pingback: You don’t have to be Superman | Win

  2. Pingback: You don’t have to be Superman « Grace Century

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