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Finding Funds for China Venture Will Be Difficult

October 07, 1998|KAREN E. KLEIN | SPECIAL TO THE TIMES

Question: My dad and I want to start a project consulting and management firm that specializes in financing and managing projects in China. How can we find capital for this business and obtain funding?

--Daniel Chan

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Answer: It is often difficult to find financing for a consulting firm. When you are talking about consulting overseas, and especially in Asia right now, I think you will find it very difficult to persuade someone they should risk funding on you.

Venture capitalists and bankers want strong assurance that you are working on a bona fide project and that the potential for return on their investment is real.

I suggest you turn to relatives and friends who believe in you as your primary source of funding at this point. Once you have established a track record, you may be more likely to obtain outside funding from more traditional sources.

The good news is that project consulting and management does not require a whole lot of capital to get started. Most of your out-of-pocket expenses will be travel-related. Those expenses can be substantial, however, when you are talking about China.

--Alvin D. Kang, CPA,

partner, Mu & Kang Consultants,

Los Angeles

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Q: My partner and I manage an industrial manufacturing plant in the Los Angeles area with $20 million in sales. We would like to purchase a low-tech manufacturing company doing $3 million to $15 million in annual revenue. We have some equity capital and would like to stay in the Southern California area. We have been exploring a number of avenues to search for a company and wondered if you'd be willing to help with some advice.

--Name withheld by request,

Los Angeles

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A: Putting the word out to business brokers and bankers is just a start in the networking process. You must also include attorneys and accountants and vendors who supply your current employer. Naturally, you must be cautious since you don't want your employer to know you want to go out on you own.

By the way, you should consult your attorney to be sure that once you leave you would be in the clear regarding any nondisclosure or trade secret documents you may have signed with your employer.

Here are four steps to help you begin your search:

* Since most good businesses that sell are not advertised for sale, you need to set up a system that puts you in contact with owners of businesses you have an interest in.

* With the use of SIC (standard industrial classifications) codes, select five to 10 industry groups that make good business sense to you based on your experience.

* Decide how far from home you are willing to commute. Establish sales ranges and maximum number of employees. Choose companies that have been in business at least five years. You want no start-ups.

* Buy a list from Dunn & Bradstreet or other list company. Create a solicitation letter and then mail it to target company owners.

Some notes of caution: Engage an attorney, accountant or some other advisor to send these letters on your behalf. If you use your name, then you could risk your job. Also, business owners receive hundreds of solicitations. Unless your letter comes across as credible, odds are that the owner, even if compelled to sell, will not chance responding to someone who could be a competitor.

--Gene Pepper,

ABC Alliance Business Consultants,

Glendale

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If you have a question about how to start or operate a small business, mail it to Karen E. Klein at the Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia 91016 or e-mail it to kklein6349@aol.com. Include your name, address and telephone number. The column is designed to answer questions of general interest. It should not be construed as legal advice.

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