Mini-Venture Capitalist

What is a mini-venture capitalist? What would one do? He or she would invest in small businesses and money-making projects. Instead of loaning money outright, as a bank does, a mini-venture capitalist would participate in ownership and profits. Below is an example, and the origination of the idea (in my mind anyhow).

Investing in the Expertise of Others

My buddy John showed me several car magazines before I understood why an old fiberglass car was a good deal at $2,300. I know nothing about cars. What's a Corvette, anyhow? (Okay, I know what one is now). I put up the money, and another $900 for a new transmission. Two weeks after we bought it, John sold the car for $4,300, netting us about $1,000. I took half the profit ($500) for putting up the money for the two weeks.

The Role of the Mini-Venture Capitalist

The idea here is that a business could be built on this concept. There are people who know the value of boats, and others who know used restaurant equipment. There are those who can fix up a house quickly for re-sale. They often don't have money, though, and banks certainly won't lend on these "risky" projects.

Most venture capitalists deal with start-up companies that may someday be giants. A mini-venture capitalist funds these smaller "deals," meaning money-making projects, and sometimes small business start-ups. They don't "loan" money, but participate in the risk and potential profit.

How It Works

To do small deals on a large scale, it would probably be necessary to educate the customer/partners. They would need to know what kind of profit margins make sense, what laws and regulations may affect the area they want to do business in, and even basic sales skills in some cases. This lack of business knowledge, like their lack of capital, isn't a problem, but a profit source.

The first step might be a workshop that they must pay for, to educate them in these basics. Then, after the certification (by way of this workshop), "members" are eligible to present ideas and projects to the company for funding. This makes the whole process less risky for the mini-venture capitalist.

A typical deal, if there was such a thing, might be something like this: A construction worker sees an opportunity to bid on a tear-down of an old building. He sees something the other companies miss, which is the fact that there is a lot of saleable metals in the building, such as copper tubing and aluminum siding. This means he can bid low and still make a great profit.

The problem is that he needs to have the tools necessary, and a liability insurance policy in order to bid. The mini-venture capitalist provides the money necessary. He requires clear documentation of all expenditures and income, and takes a percentage of the profit.

That is the basic idea. An alternative is be a "pawn shop" of sorts, but explicitly for money making projects. In this case, there is collateral involved. The construction worker in the above example might put his boat up for collateral. The mini-venture capitalist takes a smaller percentage in this case, and if there is a loss, allows for the redemption of the boat for the money forwarded, or sells it and returns any excess to the owner.