An Outlook Into A Venture Capitalist Mind
A small entrepreneur can choose from several options for funding. Banks on the one hand will look at a certain set of criteria in order to provide funding. This criterion is usually based on the financial ability of the entrepreneur to pay back. Venture capitalists on the other hand, finance promising projects with the objective of reselling their stocks at a higher price 5 or 7 years after the business opened.
Venture capitalists provide the funding to those projects that they deem promising after meticulous reviews. At the end only an average of 5 to 10% of all projects get funded.
According to a survey of 70 venture capitalists, we find that the vast majority of them use a model of decision support based on the following criteria before making any decision:
Products and Market. It covers aspects relating to the nature of the product and market, the estimated market size, growth and the seasonal nature of the activity.
Strategic and competitive. Criterion relating to the concepts of strategy and competitive dynamics, including the nature and level of competition, power suppliers and distributors, the ability to block the penetration of new entrants
Team leadership. It defines the leadership skills and experience of leadership and management team.
An attractive project has to be able to stay competitive, and manage their operations (sales, production, etc) in the most effective way.
Naturally, the project has to be financially appealing, stable and promising for venture capitalists to be interested.
Funding. Criterion that defines the relationship between the timing and targets for funds. Venture capitalists must be careful in managing their portfolio and to the commitments made to investors about the type of investment they make.
These elements are fundamental during the qualifying process that venture capitalists and angel investors undergo in order to prioritize which projects they will provide funding to.
Venture capitalists are looking for their mainly on whether the leader and the team have the leadership qualities and management skills to complete the project. It is these qualities that will affect the rest of the project.