Is Venture Capital Right For You?

 

Venture capital is by definition a risky business, but venture investors minimize their risks by imposing a number of requirements on the companies they finance. If your business meets all or most of the following criteria, you could be a likely candidate for venture capital.

SIZE: Can your business expect to grow to $15 million or more in annual revenues? Can you project a realistic net profit of $1 million or more within five years on that revenue base? Because venture capital investments require time as well as money on the investor's part, very few venture capitalists will put money into a deal that cannot grow to a certain size.

PRODUCT: Are you in or directly connected to a fast-growing industry? Is there a proprietary market for your product or service, one with minimal competition? Venture investors tend to stick to industries they're familiar with from past experience or that promise extraordinary growth. Try to find venture capitalists who know your industry from successful past investments. Avoid those whose present investments might conflict with your business.

MANAGEMENT: Do you have a real management team in place, a group that is strong in marketing, finance, administration, and everything else that is critical to delivering your product? Venture investors do not like lone wolves, no matter how brilliant, although occasionally an idea is so strong that the venture capitalist will help you assemble a proper team.

PLANNING: Do you have a current five-year plan, including projections of cash flow and net income with clear assumptions based on reality rather than wishful thinking? A sound financial plan is absolutely essential. It shows that you've thought through the future of your company.

GOALS: Do you want to manage a publicly owned company? Or are you willing to merge or sell out to a bigger company if you succeed? The venture capitalist must be able to get his money out of your business in hard dollars or marketable securities, usually within a period of five to seven years. Are you willing to bring outsiders into your business, even if it means taking a new tack toward the way you run your company? You're entering into a partnership with your investor. If you and your backer don't want to travel the same road at the same pace, it just won't work.