I want to talk about what do venture capitalists look for and what they want to invest in? I want to take you through six things that are absolutely critical if you’re seeking an investment dollar. I get asked all the time “how do I get people to invest in my start-up?”.
Well, let me just take you through it what typically a venture capital company is looking for.
An Extraordinary Entrepreneur
They invest in YOU. The want to know that the entrepreneur they’re investing in has tremendous drive, energy, passion, and they’re committed. They’re all in on their idea and there’s just no wavering.
This is critical because you’re never going to attract a great team under you if you, as the founder of the company do not have the qualities of a great entrepreneur.
Do you have an expertise or a great understanding of this company and industry you’re moving into? They want to know that you’ve got tremendous knowledge, tremendous understanding, and tremendous insight. They don’t want to run the company for you. They’re not going to be the expert.
I typically partner with someone who might have an understanding of the industry that we’re going into, because I don’t need money. I need them to have it. And that’s the same way with venture capitalists. So if you’re presenting a business idea to them, you better understand everything about this industry. You need to be an expert.
Favorable Market Conditions
There needs to be a fertile market. They want to know how large the market size is for this product or service. They’re looking for some seriously large oceans, not little bitty ponds. The only time you want a real small market is if you’re selling an island or jets. If you’re not selling an island or jet you typically need a massive market size.
They want to look at what’s the lifetime value of the customer? Because that’s the market. If you could only sell to somebody once, you typically need repeat business, unless you’re selling a jet or an island.
The Product or Service
Is there a tremendous need for this product or service? Do people what you’re selling? Do you have a point of differentiation with your competition? What makes your product or service different than the competition? What makes it better?
Your differentiation needs to be strong. I need to absolutely beat out any major competitors, so they’re going to be looking at that. When you’re pitching your product ir service, it needs to stand head and shoulders above the competition.
The Business Model
How fast can we get this to scale? Is this model an effective solution? When you pitch this idea to them, they absolutely want to know that this will work, that it can be brought to scale fast, and it produces repeatable results. How are you going to bring this product to the marketplace. What’s the model? How are you going to operate this business?
Do you have a great team with you? They want to know that you can attract talent. Initially, you need to bring some major players to the equation. Who’s going to be on your leadership team? Who’s your accountant. Who’s your attorney?
They’re going to start looking at the people that you surround yourself with and if you surrounded yourself with low level talents, they’re not going to be impressed.
How have you managed cash and credit in the past? Have you exhausted it? How much money did you bring in this year and what is being done with it? What did you do with the start-up capital you had? When the owner is kind of taken it for personal use, they immediately are turned off.
They want to know that you have taken one dollar and turned it into three.
What we talked about today was the six things that you need to consider that you absolutely need to understand when you’re presenting your business to venture capital or you’re trying to get an investor in your business.