Attracting Venture Capitalist
A venture capitalist is a person who invests in a business venture, providing capital for start-up or expansion. Venture capitalists are looking for a higher rate of return than would be given by more traditional investments. Venture capital was once known also as risk capital, but that term has fallen out of usage, probably because investors don’t like to see the words “risk” and “capital” in close conjunction. Most venture capitalists are looking for a profit of 25 percent and up. In other words, the venture capitalist may have no business experience applicable to the industry your company is involved in, and is focused on the potential rate of return your company can provide. Venture capitalist prefers to invest in entrepreneurial businesses. This does not necessarily mean small of new businesses. Rather, it is more about the investments aspirations and potential growth. Such businesses are aiming to grow rapidly to a significant size. As a rule of thumb, unless a business can offer the prospect of significant growth within five years, it is unlikely to be of interest to a venture capital firm.
There are some key points that venture capitalist look for in a business. First is your management team, it plays a vital role especially in a start up business. VCs looks into how your team manages east to difficult situation. Venture capitalists assess the strength of a management team by examining the members from three different perspectives. Venture capitalists look for professional experience. People who have a very good track record, every startup should have a marketing and operational executive. VCs also looks for admirable personal traits in the entrepreneurs such as reliability, reputation, trustworthiness, etc. VCs would like to deal with entrepreneurs who have established credibility within the industry. Venture capitalists generally tend to invest in entrepreneurs whose reputation can be verified. And lastly, VCs look for entrepreneurial abilities in the team. Heading a startups is difficult than heading a large organization it’s because of the limited resources most startup have. Management team should not only be extremely passionate and willing to persevere about an idea, but also have the ability to take a calculated risk.
Second is competitive advantage, startup corresponds to the possession of rare core competencies that creates value to customers. A company has a competitive advantage if competitors cannot easily imitate their core competences. Competitive advantage is the company’s unique specialty that no other has. VCs look at the competitive advantage a startup has before they determine the startup’s growth potential. Every entrepreneur should articulate the competitive advantage of his/her business idea before approaching investors.
Third, VCs looks for the company’s potential to the market, it defines the total sales that the startup can eventually make. The market potential really depends on the market size, market needs, and market penetrability. Market needs describes the problem the startup intends to solve. Market size describes the quantity or size of the sales opportunity for the business. Market penetrability only tells how easy it is to make sales and generates revenues. It tells marketing efforts that the startup needs to exert before it penetrates into the market. Venture capitalists closely look at the market potential for a startup idea before they decide to fund the idea. Entrepreneurs should focus on clearly defining the market before approaching investors.
Fourth is Exit Strategy, startup should also initially plan for a strategy of “cashing in” on their company allowing VCs to liquidate their shares. VCs prefers either IPO or acquisition as their exit strategies. Most VCs prefers going public however not all companies have the potential to go for IPOs. They prefer to be acquired by a bigger company.
VCs not only invest in companies, but also help companies succeed. They advise entrepreneurs and assist with customer contacts, market specific intelligence, etc. A VC is successful only if his or her portfolio companies succeed. Venture Capital fare not mere financiers or investors. As partners of the entrepreneur, they contribute in any way possible for the success of the company. The key then is in choosing the right firm for the type of business that you would want to enter into. Just like in entering into a partnership, you wouldn’t want to be partners with someone whom you don’t like to work with.
More detailed information and useful advice can be found at http://www.funded.com/ Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check out website.