What do venture capital funds seek for in an investment?
Venture capital is one of the options for early-stage companies and startups raising capital. To attract the fund, the company needs to prepare an excellent business plan. Before doing that, it is better to understand what a venture capital expects for new investment.
An attractive business plan will prove the following “The team and assets to be committed to the business can plausibly sustainable market power in a market large enough to justify the investment.” according to Dermot Berkery, author of Raising venture capital for the serious entrepreneur.
Market power is a key ingredient missing in most business plans. Hence, Dermot Berkery addresses three main propositions to examine if the business is worthy of investment from the view of venture capitalists.
Potential for accelerated growth in a big, accessible market
Venture capital investors will generally invest in a company only where they can see a way to earning a 10 or higher multiple on the investment. Thus, VCs focus heavily on the size of the market. They want to be involved in a big market that the company can grow quickly to a large size. But they are just like one that is not well signaled to investment communities. The reason is the weight of capital pursuing opportunities through different investment vehicles might drown the prospects of achieving great return on capital.
Ideally, they want to get involved in markets that rights on the cusp of takeoff that customers are yet willing to consider the product and there are no established competitors with good revenues. The business plan needs to outline how the early sales will be closed and how the sales model will scale over time, as well. They will assess whether the company will dominate in the industry, ranked 1 or 2. The dominance assures the ability to gain supernormal return as above mention.
Achievable position of market power
The business must meet three requirements: convey huge value to customers relative to offerings of competitors; have a sustainable, defensible position; yield very high gross margins (at least 70%).
Capable, ambitious, trustworthy management
Quality of management execution has a significant impact on the success of a company. Venture capital fund tends to look for a superb team that owns good characteristics including a balanced team, deep domain knowledge, prior experiences and record, and ambition.
The team needs to be balanced with a mix of technical, sales, marketing, skills, etc. Investors don’t want to back an individual, they want to back a team. The team needs to possess knowledge and insight not only macro-level trends but also micro-level facts. The company has more opportunities to convince VCs if members own great highly relevant resumes. More importantly, VCs want to cooperate with trustworthy and passionate management, who adapt to changing the business environment.
Still curious and want to learn more? Here is a unique opportunity to meet and talk with Dermot Berkery. We’re pleased to host the event with his presence called Etalk Adventure to the Venture | Chat with VC Elite
Date: Saturday, 28.08.2021
Time: 03:00 PM – 4:30 PM (Vietnam Time)
Register here: https://www.facebook.com/events/573363153663564
Submit your Question before the event to get a chance to meet 1on1 with our speaker: https://bit.ly/VVCP-Etalk-Exclusive-Chapter-QnA
Writter: Hằng Thu – VVCC Project