What do venture capital funds look for in a company?

by Ashvini on March 19, 2011 · 6 comments

in General

Venture capital funds have funded a number of projects across the world. The funds are created using the funds provided by companies, high net world individuals or trusts across the world. Venture funds invest in a variety of industry and in a number of technologies. Venture funds provide money to a start-up companies which do not have strong financial backing but either have a great team or excellent, unique ideas that have large potential to succeed.
If you have a company that is looking for fund, there are a number of things you need to do. Please be aware that VC funding is only for companies that have achieved some kind of financial closure and is waiting for funds to scale up operations. That means VCs fund those companies that have been existing for sometime now.
However, if your operations are small or you just have an idea, you should not give up. There are plenty of other fund providers called as seed funds or angel investors which will fund your project till the time, it goes to the scale of a venture fund.
The criteria of a project selection is however the same . You need to fit in that criteria to be even figured out for funding. Sometimes, you may be at a loss if your idea does not fit an angel or vc funding but with increasing options, you may approach any other fund.

Venture capital funding

So here is what a VC or an angel investor or a seed fund look for. Please note that these are general guidelines only and the requirements may differ from industry to industry and fund to fund.

  1. You have a unique idea
  2. The first criteria is that your idea should excite venture fund owners. If your idea is never being tried before however, it has a great potential because of the region it is implemented in , you stand a great chance for funding. However if your idea is not unique but it is applied differently and thus has a great potential , you still get a chance to showcase your idea to the vc funds.
    So if possible, find a unique idea or atleast find a way to execute an existing idea in a unique way. You will sure get VC’s attention.

  3. You have done competitive analysis
  4. VCs generally do not like to hear that a certain idea has no competition. Either the entrepreneur has not done the groundwork properly or he has no idea how the competition can develop similar product which either reduce the possibility of future profits. So never say that you don’t have any competition. Find out in how much time, someone can copy your idea and how would you then respond to it. A well written competitive analysis can really impress investors

  5. You have done your financial analysis
  6. If you do not know how much you are going to make a year when you start your venture, your VC will not like it. To get VCs attention, you have to clearly outline your revenue plans, your expected earnings, profits, break even time, cash flows and many other things. If you do not know about them, get help from a chartered financial professional but do not go to a VC without your financial plan. You might come across as non-professional immature entrepreneur.

  7. You have a good team
  8. A VC normally will not fund a lone ranger. If you have a team that has expertise in your particular domain, you have better chance towards funding. You cannot also say that you are going to hire a team. A VC look for the dedication of members of your team and that they are willing to stand thick and thin with you. So find people who share your visions and are willing to take risks with you

  9. You have a good execution plan
  10. VCs will like it if you have prepared a good execution plan that talks about finance, marketing, execution , hiring, customer acquisition etc. The more detailed it is the more better.

  11. You have performed risk analysis
  12. No one would like their project to fail however a risk analysis help you to anticipate some of the risk that can occur and impact your venture. It also helps a venture capital to understand nuances of your project and may increase chance of later funding if the risks that you have listed actually happen during your project

  13. Your answers to their questions
  14. No matter how good your plan is, investors will have their own questions on your project. If possible try to imagine what they can be . If during your presentation to investors you get those questions you can answer them confidently.
    Don’t worry if you cannot answer all of them. A few uncertainties are expected and a nearly satisfactory answer is good enough

  15. Break even points and exit criteria
  16. VCs are after all investors. They would want to know how long it will take to get their money back, their exit criteria and how much will they make when they exit. If you have outlined break even point and it fits the criteria that they have, you are in for funding.

  17. Your personal commitment, willingness to put money and share your ownership
  18. A VC will try to gauge your personal commitment to project and how much of your own money you are going to bring into the project. They would also ask for ownership in your venture as a percentage of ownership. You should be willing to negotiate with them what you feel is right % of ownership .

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Veronica Cervera November 9, 2011 at 12:01 pm

This is top notch advice. It may be difficult for one to land a good VC to back up their company. But a good idea is a good idea and a solid team is a solid team. It’s important to focus on the important things first. Then brush up with the things that would help you present this to the VCs.

Tech Frill July 10, 2011 at 2:22 pm

besides the operating budget forecasts what i believe is the venturist is interested in the cash flow budget of the venture. the cash budget should present a holistic forecast of the expected cash – flows and outflows.

Deep Krishna March 22, 2011 at 11:18 am

Practical on the ground thoughts based on experience

Aswani March 19, 2011 at 4:36 pm

Hello Ashvini, thanks you sharing these useful details in depth. I am learning a lot. Keep writing..!

Ashvini Kumar Saxena March 19, 2011 at 4:38 pm

Hey Bro,

You are most welcome.


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