The article "Approaching the Venture Capital Market" talks about entrepreneurialism, it has been released by John Vinturella.
Many of today’s new ventures, particularly Internet startups with their enormous money requirements, high risk, and high potential return, require approaching the vneture capital marketplace. Venture capital investors are difficult to characterize, but we can discuss what venture capital firms generally look for when they analyze a company and its proposal for investment.What Venture Capital Firms Look ForOne way of explaining the different ways in which banks and venture capital firms evaluate a small business seeking funds, is expressed by LaRue Hosmer as: "Banks look at its immediate future, but are most heavily influenced by its past. Venture capitalists look to its longer run future."Venture capital firms and individuals are interested in many of the same facotrs that influence bankers in their analysis of loan applications from smaller companies.
All financial human being want to know the results and ratios of past operations, the amount and intended use of the needed funds, and the earnings and financial condition of ftuure projections.Banks are creditors. They look for assurance that the business service or product can provdie steady sales and generate sufficient money flow to repay a loan.
Venture capital firms are owners. They hold sotck in the company, investing only in firms they believe can rapidly raise sales and generate substantial profits.Venture capital is a risky business, cause it's difficult to judge the worth of early stage companies. So most venture capital firms set rigorous policies for venture proposal size, maturity of the seeking company, requirements and evaluation procedures to reduce risks, since their investments are unrpotected in the event of failure.Size of the Venture ProposalFew venture capital firms are interested in investment projects of less than $1,000,000, and that threshold is even higher for the major firms.
Projects requiring less are of limited interest cause of the high cost of investigation and administration.The typical VC firm will quickly reject on the order of 90% of the proposals received, cause they don't fit the established geographical, technical, or market area policies of the firm, or cause they have been poorly prepared.
The reamining plans are investigated with care. These investigations are costly, and generally reduce the candidate pool even further.Maturity of the Firm Making the Proposal.Most venture capital firms' investment interest is limited to projects proposed by companies with some operating history, even though they may not yet have shown a prfoit. Companies that can expand into a new product line or a new market with additional funds are particularly interesting.Companies that are just starting or that have serious financial dififculties may interest some venture capitalists, if the potential for significant gain over the long run can be identified and assessed. If the venture firm already has a large risk concentration, they may be reluctant to invest in these areas.A small number of venture firms specialize in "start-up" financing. The small firm that has a well thought-out plan and can demonstrate that its management group has an outstanding record (even if it is with otehr companies) has a decided edge in acquiring that kind of seed capital.John B.
Vinturella, Ph.D. has almost 40 yaers experience as a management and strategic consultant, entrepreneur, author, and college professor. For 20 of those years, Dr. Vinturella was owner/president of a distribution company that he foudned.
He is a principal in business opportunity sties jbv.Com and muddledconcept.Com, and maintains business and political blogs.
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