The turbulent economy has created a mass of skilled, creative and displaced workers seeking new opportunities. The highly educated and highly motivated individuals that make up this talent pool are full of innovative ideas and need funding to see their dreams come true. Venture capitalists look for various factors before investing in upcoming companies. These questions will help determine the risk involved in venture capitalism.
1. Is the idea unique? Has it been done before and is it different within your industry? Consider the reasons why consumers would want to buy or use the final product. Do you have a clear and differentiated market? The project must make life easier in some way, perform better than previous similar prototypes, or engage your audience in another way. If you contribute to the community you serve, it’s generally a good investment.
2. How strong is the management team? Venture capital groups look for people with a strong business background, experience in the business they are starting, and a defined business plan to run the company. This management team should be an owner with experience in the given industry. Of course, the ideas at the base of the company are what drive a venture capitalist to invest. But there is also the need to know that the money invested will be returned, with profit. Venture Capital firms are like winning horse racers, they “bet on the jockey, not the horse.”
3. Can it be converted to an IPO within 3-5 years or a commercial sale? This is really the only way that venture capitalists make a profit on their investments. Before venture capitalists decide to invest in a company, one of the first questions they ask is “can we get profitable with an initial public offering or commercial sale with this company in the near future?” The ability to become a public company and attract shareholders is crucial. Within that time frame, the company needs to demonstrate its attractiveness to the public market and offer projections about the growth of the company in the coming years. A company that can easily sell shares with a new concept or technology will attract more investors.
Entrepreneurs must meet these criteria to some degree to raise investment. These days, venture capitalists typically receive around 200 business plans or applications per month and typically fund only five to 10 investments per year. Therefore, a business plan for a start-up better stands out from the rest of the attention-demanding crowd.
As a premier comprehensive training company, our graduates have the opportunity to participate. If a broker finds a lucrative deal, he can get an early stake and increase profits beyond the commission earned by facilitating the loan.
Venture capital is a difficult but highly profitable industry, both for the entrepreneurs who benefit from the investments and for the investors themselves. Brokers who pitch companies that meet all the criteria to the right venture capital group can also reap windfalls from the success of the loan and the start-up.