Venture capitalists unlike banks are looking to provide funding to small businesses that look promising. Their main goal is to be able to resell their stocks after 5 or 7 years assuming the business has become successful. Bankers would request collateral from new entrepreneurs. Venture capitalists on the other hand, focus rather on the people who will manage the project.
Venture capitalists provide the funding to those projects that they deem promising after meticulous reviews. At the end only an average of 5 to 10% of all projects get funded.
According to a survey of 70 venture capitalists, we find that the vast majority of them use a model of decision support based on the following criteria before making any decision:
The product and the market are highly considered by venture capitalists. They seek to understand whether the market is ready for the product and whether it has tendencies for development.
The small business must be strategic and competitive within the market they are in. Venture capitalists evaluate the ability of the business to compete, what its relationship is with the suppliers and distributors and whether it can discourage other from starting.
Venture capitalists take into consideration the managerial abilities and leadership skills of the business.
Competence in management. This criterion relates to the organizational and administrative skills, capabilities in marketing, sales and production.
Financial projections. It concerns such as the time to reach the threshold of profitability and the rate of return.
Venture capitalists also study the conditions under which the funding will be granted. The relationship with the organization needs to be effective, harmonious and convenient for both parts. Investors have to manage their portfolio carefully in order to meet the agreements with the contacts.
In fact, all the above criteria are relevant regardless of the situation, we request funding to the banker, a venture capital company or a business angel etc. Only the weighting of these criteria will vary according to the expectations and needs of each person (whether a banker or a business angel).
Although bankers may be more attracted by a business financial history, venture capitalists regard other factors highly. Managerial skills, the personality and the leadership of the entrepreneurs are for venture capitalists equally important.
Venture capitalists provide the funding to those projects that they deem promising after meticulous reviews. At the end only an average of 5 to 10% of all projects get funded.
According to a survey of 70 venture capitalists, we find that the vast majority of them use a model of decision support based on the following criteria before making any decision:
The product and the market are highly considered by venture capitalists. They seek to understand whether the market is ready for the product and whether it has tendencies for development.
The small business must be strategic and competitive within the market they are in. Venture capitalists evaluate the ability of the business to compete, what its relationship is with the suppliers and distributors and whether it can discourage other from starting.
Venture capitalists take into consideration the managerial abilities and leadership skills of the business.
Competence in management. This criterion relates to the organizational and administrative skills, capabilities in marketing, sales and production.
Financial projections. It concerns such as the time to reach the threshold of profitability and the rate of return.
Venture capitalists also study the conditions under which the funding will be granted. The relationship with the organization needs to be effective, harmonious and convenient for both parts. Investors have to manage their portfolio carefully in order to meet the agreements with the contacts.
In fact, all the above criteria are relevant regardless of the situation, we request funding to the banker, a venture capital company or a business angel etc. Only the weighting of these criteria will vary according to the expectations and needs of each person (whether a banker or a business angel).
Although bankers may be more attracted by a business financial history, venture capitalists regard other factors highly. Managerial skills, the personality and the leadership of the entrepreneurs are for venture capitalists equally important.
About the Author:
Wade Henderson - recognized Professional - 15 yrs in the Business Finance Field - strong reputation for getting the deal done. IMMFinancial.com project financing finance project
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