Finance

Important Factors For Venture Capitalists

The venture capitalist provides capital to a promising perspective to resell its stake by 5 to 7 years in making a capital gain income. Investors expect a return on investment from 5 to 10 times their bet. Unlike the banker, the investor does not seek collateral but looks closely at the business plan and the people who run the project.

The venture capitalist will carefully analyze all projects that are proposed before making an investment decision. In the end, only 5 to 10% of projects will be selected.

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

The management and the leadership abilities of the people in charge of the project or business is one of the most important factors for venture capitalists.

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 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.

All of these elements are important for a venture capitalist in order to choose what project to fund. Business can choose to get funding from different sources, banks, angel investors, or venture capitalists. The last two are most likely to give priority to these factors.

For a venture capitalist the management skills, experience and vision of an entrepreneur are key factors for providing funding. They analyze the personality of the management and their ability to successfully handle the project.

© 2009 Finding Who We Are.