To attract the interest of a VC, your business must have a long-lasting competitive advantage. That means you must offer a product or service that customers can only live with or rely on because it is much better and less expensive than the competition.
Management Team
A company can have a great business idea, but without the right management team, it w Venture capitalists like Brad Kern are looking for a solid and capable management team with a proven success track record, either with their current company or in previous positions. The management team sets the company’s direction and makes critical decisions. They must also communicate a clear vision and goals for the company and motivate and inspire employees. In addition to evaluating the company’s management team, VCs will conduct personal reference checks and talk with current and prospective customers. They may also bring in scientific or technical experts to evaluate the company’s intellectual property and products.
Market Opportunity
Venture capital is risky, but it offers the potential for significant returns. VC firms seek out companies with an enormous market opportunities to justify the risks. This typically means a potential to generate sales of over $1 billion. Demonstrating a significant market opportunity to a prospective VC investor requires detailed market sizing information, including third-party estimates and feedback from potential customers. It also includes financial growth projections with a realistic burn rate and debt repayment plan.
Financials
VC firms aim to produce a high return for their investors. This is why they want to ensure that a startup has enough growth potential to sustain their investment. This is determined by proving that the startup’s unique offerings serve customers’ needs. Demonstrating that your startup will have a large addressable market is also essential. VCs will not invest in businesses that target only a few consumers. It is essential to have financial projections prepared that show how your startup will grow and when it may need additional funding. Investors will also want to understand your proposed burn rate and what progress you can expect to achieve with the investment capital. This will help them decide whether they can provide the funds you need.
Customer Requirements
Venture capital firms invest in companies that scale up and provide products or services to a large market. They want your business to meet customers’ needs with high customer satisfaction and repeat purchases. VCs expect your business plans to include a detailed market size analysis. This includes third-party estimates found in research reports and feedback from potential customers. The Founder/CEO is usually the first person the VC will meet with. VCs seek passionate, determined people who can overcome challenges as the company grows. Businesses with robust and reliable management can often attract VC investment even if the business plan is imperfect. VCs prefer to invest in companies led by experienced managers they can trust. This is especially true in startups with a team of inexperienced executives.
Exit Strategy
A company’s exit strategy is how it intends to transfer ownership of the business to a third party. The options include being acquired, an initial public offering, a management buyout, or a liquidation of assets. A clear exit strategy is essential for VC investors to determine how they will realize their investment gains and minimize risk. The most common exit strategy for a venture capital-backed company is to be acquired by another company. Acquisitions can quickly allow larger companies to add innovation without conducting their R&D. Successful VC-backed portfolio companies typically exit through an IPO or a merger and acquisition (M&A). Most media attention is given to IPOs, but M&A has become a norm.
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