Operating out of the San Francisco Bay Area, we view business plans of many young companies seeking first- or second-round financing. When we think an opportunity is exceptional, we will raise $500,000 to $2 million from investors for the company in the hope that at a later date it will be acquired or go public at a substantially higher valuation. In some cases a company will need to raise money in later rounds and large venture capital firms will invest alongside us. While these investments can be exciting and often offer extremely high potential returns, there is commensurate risk. It is very possible that investors will lose their entire investment and these investments are not for everybody.

We recently experienced the good and bad of these investments. We recently completed a $12.6 million second round financing from a venture capital firm in a company we helped launch. The funding was at a valuation three times what we paid three years ago. The company had profits of over $1 million last year, but is a long way from a liquidity event. If this company succeeds, investors can realize returns of 15 or 20 times their investment, or more. But the investment carries high risk, and much can happen to derail the company. Until the liquidity event, there is a reasonable chance that investors can lose their entire investment. With the investment by the venture capitalists, the company goes from a small company in which we could play a substantial role to a different entity, controlled by very business-like person whose sole interest is getting to a successful liquidity event as soon as possible.

Every so often if we find an exceptional opportunity, we will make the investment available to clients.