Venture Financing:

Step-by-step Guide

Investment Selection Criteria

Ranking by Business Angels & Venture Capitalists

 

Venture Financing Funnel    

Venture Financing: Key Documents

 

The five sets of things venture capital investors look for in a start-up, in order of importance, are1:

  1. a large, rapidly expanding market

  2. people / management that can get the job done

  3. a brilliant idea of technology that can be commercialized

  4. a strategy that has a strong sustainable competitive advantage

  5. a reasonable price per share

Summary of Investment Criteria2

(in Rough Order of Importance)

Selected Investment Criteria

Ranking by

Business Angels

Ranking by

Venture Capitalists

People or entrepreneur

Enthusiasm of the entrepreneur(s)

1

3

Trustworthiness of the entrepreneur(s)

2

1

Expertise of the entrepreneur(s)

4

2

Investor liked entrepreneur(s) upon meeting

5

9

Track record of the entrepreneur(s)

10

8

Market or product

Sales potential of the product/service

3

5

Growth potential of the market

6

6

Quality of the product/service

7

10

Niche market

9

13

Informal competitive protection of the product/service (know-how)

12

14

Nature of competition in the industry

17

16

Overall competitive protection of the product/service

21

11

Formal competitive protection of the product/service (patents)

27

20

 

 

Financials used to screen for potential gains

Perceived financial rewards

8

4

Expected rate of return

11

7

High margins for business

15

15

Financials to monitor the operating firm

Low overheads

16

21

Ability to break even without further funding

18

19

Low initial capital expenditures needed (on assets)

19

24

Size of the investment

20

23

Low cost to test the market initially

22

22

Other business attributes (vital to hands-on role)

Possibility of investor's involvement in business development

13

18

Investor's strengths in filling gaps in the business

14

26

Venture is local

23

27

Other business attributes (miscellaneous)

Potential exit routes (liquidity)

24

12

Investor's understanding of the business or industry

25

17

Presence of (potential) co-investors

26

25

 

 

 

 

Venture Financing

Complete "A to Z" Smart & Fast guide

Make your business attractive to investors!

Understand the Venture Financing Chain

Understand the requirements of Venture Capital Investors

Follow unique Step-by-step Guide to Venture Financing

New-generation e-book + 40 slides 

 

References:

  1. "High Tech Start Up", John L. Nesheim

  2. "Angel Investing" by Mark Van Osnabrugge and Robert J Robinson, Harvard Business School