Book Review

Venture Capital Investing: The Complete Handbook for Investing in Small Private Businesses for Outstanding Profits

By David Gladstone

Investing in a small company is always a gamble. Investors know the risk. However, David Gladstone in his latest book, “Venture Capital Investing: The Complete Handbook for Investing in Small Private Business for Outstanding Profits,” contends that private investors can minimize it by remembering that most companies succeed or fail because of employees. Entrepreneurs can add energy and vision to their companies but they can’t go it alone. Gladstone compares entrepreneurs to quarterbacks who can call imaginative play, but without a good team in place success is unlikely.

Academic studies probe company organizations for secrets to success. New buzzwords emerge to describe corporate cultures. But Gladstone argues that everything boils down to how a company is organized. Gladstone recommends that investors should study a company’s organizational chart before investing. Organization charts are critical, even in the smallest corporations. The charts spell out who is responsible for the various jobs – it’s a visual snapshot of how a company works. In small companies, the CEO may perform many jobs, but you can assume that eventually, if the company succeeds different people will fill all the roles mapped out.

Gladstone recounts the example of a fledgling company in which the entrepreneur refused to establish an organizational chart, thinking his employees should work as a team to handle all its challenges. At first, the author admits it sounded like a fresh idea, but the company failed. Gladstone argues that many “nitty-gritty” jobs, which were critical, were never completed because of the lack of structure. The author writes: “Any corporations that lacks this hierarchical structure is likely to experience growing pains, if not outright failure.”

Gladstone notes that there are critics of hierarchical organizations. Yet, he contends that what critics are really arguing is that an organizational chart has a high pinnacle with one entrepreneur at the top and many people at the bottom which is often less effective than a structure that is spread out and features a strong middle-management team.

When considering investing in a company, Gladstone also points out

Get a list of company officers and directors. Investors should talk with all of them.

Contact any other investors with more than 5% ownership. Ask why they made a large investment in the company.

Have a list of stockholders prepared for you. Know how much each person paid for their ownership and how much they own.

Study the management team – title, years of service, years in their position, prior business experience, education, and compensation.

Determine how the CEO dominates the operations.

Can the middle-management team execute the business plan?

In the book, Gladstone breaks down the key ingredients of a company that investors should consider before making investment decisions, such as analysis of management, personnel and organization, marketing and sales, financials and projections and investigating the production process.

Venture Capital Investing, published by Prentice Hall, is written in clear language and crammed with helpful information for all levels of investors. Gladstone is an authority on investing and economic issues who has written or collaborated on 20 books. Before investors take the plunge in a fledgling company, check out Gladstone’s Venture Capital Investing and learn how to analyze the potential investment value of a company.

Reviewed by Frank Szivos Editor Angel Investor News

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