Do venture capitalist invest in profit making startup’s
How venture capitalist make investment choices is a billion dollar question. The avaited answer is here.
VC’s are taking a hefty risk by investing in newly started businesses. As the new ventures have minimal sales initially, the founder may be having management experience and the business plan which he is having can be a prototype.
Risk will give rewards
As VC’s are involving in risk taking, they dump millions of investments in small firms, untested ventures with the hope that they eventually transform to a multi billionaire startup. VC’s check the previous check books
While mature companies, the process of checking value and investability is fairly straightforward. Established companies produce sales, profits and cash flow that can be used to arrive at a fairly reliable measure of value. But with early-stage ventures, VCs have to put much more effort into getting inside the business and the opportunity.
Investors look at management by far the best way to be taken into consideration. VCs invest in a management team and who have the ability to execute the business plan, first and foremost. Businesses looking for venture capital investment should be able to provide a list of experienced, qualified people who will play an important roles and enhance to company’s development.
There is an old saying : “VC’s prefer to invest in a bad idea led by accomplished management than a great business plan supported by a team of inexperienced managers.”
Size of the Market
Demonstrating that the business will target a large market opportunity is important for attracting VC’s attention. In order to receive the large returns that they expect from investments, VCs generally want to ensure that their portfolio companies have a chance of growing sales to worth hundreds of millions of dollars.
Venture capitalists expect business plans to include detailed market size analysis. Market sizing should be presented from the “top down” and from the “bottom up.” That means providing appropriate estimates in reports, but also feedback from potential customers, showing their willingness to buy and pay for the business’ product.
Great Product with Competitive Edge
Investors want to invest in great products and services with a competitive edge that is long lasting. It should look for a solution to a real problem that hasn’t been solved before by other companies in the market. The companies should have products and services that customers can’t do without, because it’s so much better or because it’s so much cheaper than anything else in the market (Free Whatsapp vs charged messenge service provider ). They want their portfolio companies to be able to generate sales and profits before competitors enter the market and reduce profitability.
Awareness of Risks
VC’s job is to take on risk. So, naturally they all want to know what they getting into early stage company. When they speak to the business’ founders or read the business plan VCs will want to be absolutely clear about what the business has accomplished and what need to be accomplished.
- Is this the right product for today or few years from today?
- Is there an exit from the investment or a chance to see a return?
List of online VC avenues
LetsVenture- LetsVenture is an online funding platform that helps to fund startups seeking for seed fund
Angel list- This is the place where the “world can meets the startups”