Venture Capital - What Venture Capitalists Are Looking For Venture capitalists are in business to make money. They have to have the ability to select companies that will make more money than their rivals.
There are 2 types of companies. The first is a lifestyle business. These types of companies are centered around the lifestyle of the entrepreneurs. The owners will use the business to drive expensive cars and purchase big houses. These are not businesses that attract venture capital.
The second type of company is a gazelle. These companies are run by entrepreneurs who want to build world-class organizations.
There are three ways for a venture capitalist to exit from your business: acquisition, public offering or management buyout. Half of the decision to invest in your company is derived from if the venture capitalist can see a clear exit.
An example of a gazelle is Hewlett-Packard. Mr. Hewlett and Mr. Packard wanted to build a world class company. They recognized that they did not have the necessary skills so they hired professional management and became mentors and the elderly statesmen for the company. They were able to exit from the company and it became a huge success.
Venture Capital - How Many Venture Capitalists You Should Contact If you approach them on your own, your personal time constraints will dictate how many you can contact.
It is an intermediary’s job to determine how many to approach. The intermediary will take you to a larger number of venture capitalists because you cannot guarantee that all of them will be interested. A further number will provide unattractive term sheets. The end goal is to get a reasonable offer on the table from a reputable venture capitalist.
If the venture capitalist has lots of funds and is looking for deals, it is easier to raise capital. In today’s market, venture capitalists are saddled with too many problems from their current portfolio companies.
It is the job of the intermediaries to know which venture capitalists are tapped out and which are looking to invest. They must have a knowledge of the market and know who to take your proposal to.
There is a danger of “over shopping” the deal if you go to too many venture capital companies.
If you are turned down by 4 to 5 highly targeted venture capitalists, something is wrong. Either your company has fundamental flaws, your terms are unreasonable, or your business does not reflect current market trends.
Venture Capital - The Intermediary's Role In Putting The Plan Together Intermediaries do not put your plan together but will help you clarify your offering. They will know how attractive your proposal looks from an investor’s point of view and be able to help you improve it The basic business plan is put together by the entrepreneur and the intermediaries know what the venture capital hot buttons are and how to turn them on or off. They can help ensure that the most attractive elements of your plan are clearly brought up to maximize the chance of investment by the venture capitalist.
As an example, there are many entrepreneurs who have intelligence, common sense, and a great business sense but are not skilled at writing things down on paper and creating a logical business plan. Northern Crown Capital has helped such individuals in clarifying their business plan and assisted them in then going after a significant capital investment.
To learn more about this author, visit Evan Carmichael's Website.
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