“The greater the risk, the greater the
company is in its second or third round growth
state and needs more capital either to carry out
expansion plans or to tide it over until a merger
or public offering carries it to the next stage of
A company’s business plan serves as the primary
analytical tool for the venture capitalist. In
analyzing the plan, a enture capital firm would
most likely focus on three features.
The product or service- Investors seek product
or service innovations that give the company
a strong competitive advantage. A new idea,
backed by market surveys measuring the appeal
of the product or service and its potential market
may be tempting to such investors.
Management capability- No matter how good
your product or how innovative your service, the
quality and experience of the management is a
key factor in the success of your business. The
astute investor is well aware of this and looks for
solid evidence of such skill.
The industry’s growth- Investors also want to be
sure that your products or services is in a growth
field. A significant or revolutionary product
improvement, by itself, may not have appeal in a
declining product or service category.
Most venture capitalists purchase common
or convertible stock rather than burden the
fledgling enterprise with interest payments on
debt or debentures. They may possibly want more
than 50 percent ownership.
Additionally, while the venture capitalists may
insist on sitting on the Board of Directors or
offering management and technical advice,
they are rarely interested in the day to day
management of the enterprise, unless its survival
and their investment is at stake.
Keep in mind that the minimum investment
is generally from $25,000-$1,000,000 , but
investment ceilings are almost unlimited.
By: Abe Cherian