What to Look For In Venture Capital Funding?
Today, any business venture or project demands an uninterrupted financing chain, right from the pre-seed capital to stock market. These start-ups usually go through multiple Venture capital funding rounds, conventionally following the below route:
Bootstrapping phase: involving founders, friends & family, sometimes called the "3Fs",
Business angels, venture capital (VC), and initial public offering (IPO). Building venture capital funding as a first-timer is certainly not an easy task. This is supported by a fact opined by a panelist at a recent conference, that nearly 95 percent of entrepreneurs choose to not to raise venture capital. Knowing what to expect is often only half the battle. What to look for in Venture capital funding? Here are a few pointers.
Core Management Team – Make sure that the Venture Funds back the entrepreneurs and the team. Only a good core management team can sustain the business helping it to achieve the desired growth. .
Market Size, Opportunity and scalability – The source for venture capital funding that you go for, should offer you the opportunity and capability to play globally. With the potential to change the rules of the game, it will help you have a competitive advantage.
Intellectual Capital - Apart from Human Capital which determine valuations, the methodologies, processes, network, customers form an important part of the intellectual capital.
Clean structure – One should always prefer a single company, with no cross-holding or subsidiary structure. There should be complete transparency in the working of the VC firm.
Valuations and suitable stake – Appropriate stakes and valuations should be offered in the company.
Returns on Investment – There should be a strong potential for returns for investment returns.
Value addition – Offer a potential for co-investment and Future Investments with added values.
Exit opportunity – It should provide the exit opportunity, which is a way of "cashing out" an investment.
So, what venture capital funding to look for? Well, remember that a Venture capital firm is not only about financing and profitable returns, but also about the non-funding issues like knowledge and education for internal as for external issues. Also what we see here the further the process goes, the less risk of losing investment the VC-firm is risking.