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.
A study done on 70 venture capitalists focused on analyzing the reasons behind the decision making process that these investors undergo in order to fund a project.
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
Venture capitalists take into consideration the managerial abilities and leadership skills of the business.
An attractive project has to be able to stay competitive, and manage their operations (sales, production, etc) in the most effective way.
Financial projections. It concerns such as the time to reach the threshold of profitability and the rate of return.
Funding is a factor that determines how the relationship between the investor and the company will be. This relationship is defined by the terms and conditions the both parties agree on. Venture capitalists manage their portfolio carefully in order to provide financing to the business according to the contracts they have with each.
In fact, all the above criteria are relevant regardless of the situation, we request funding to the banker, a venture capital company or a business angel etc. Only the weighting of these criteria will vary according to the expectations and needs of each person (whether a banker or a business angel).
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.
Wade Henderson – recognized Professional – 15 yrs in the Business Finance Field – strong reputation for getting the deal done. IMMFinancial.com venture capital private equity; venture capital funding