Contents
Introduction
If you didn’t know, venture capitalists refer to private investors who provide capital and funding to companies with high potential for growth in exchange for an equity stake. Most recipients are small and young start-ups that have just entered and started the business.
Venture capitalists actively look for potential start-ups that they think might achieve success in the future. The money they invest is to fast forward the pace on the road to huge growth. To put it simply, they are looking for the next big thing.
Being backed by a venture capitalist like vc australia can open so many doors and opportunities for your business. It is no wonder why the competition for funding by venture capitalists is fierce. To stand out from the saturated market, here are 12 things to work on to be outstanding.
Innovation
Venture capitalists often take seconds to decide if a business is worth investing in. Hence, you will have to be able to capture their immediate attention by offering something new and unheard of in the current industry your business is based.
If your product or service is already common in the market, they’ll likely skip past it. Advertise your unique selling point and make them desire it.
Feasibility
After the venture capitalists have decided that your product is worth deeper consideration, they’ll check to see if your business plan is feasible or not.
At this stage, your business will have to present a detailed plan, one with actual numbers and statistics, to show how your business will proceed with or without the funding.
A Broad Serviceable Obtainable Market (SOM)
This means that your product or service should be able to reach and is applicable to a wide network of people. The logic is simple. More customers equal more profits for your company and ultimately a better return rate for the venture capitalists.
As a rough guideline, seasoned investors and entrepreneurs suggest that your market should be worth at least a billion dollars for venture capitalists to even consider your company.
A Straight-Forward Conversion Process
The conversion process refers to how you can turn your targeted audience into buyers. An uncomplicated conversion process with few barriers is ideal so as to prevent any unnecessary waste of time or resources.
You will need to have a detailed presentation prepared for this in order to convince any potential venture capitalists to invest in your business.
An Acceptable Cash Burn Rate
Your business’s gross burn rate refers to your total monthly revenue deducted by the expenditure. If the revenue is more than the total expenditure, venture capitalists will infer that your company is likely able to last. Otherwise, a negative cash burn rate will reflect rather poorly on your business.
A Comprehensive Plan If You Were to Receive Funding
Needless to say, since venture capitalists are investing a large sum of money into your business, they are going to want to see how their capital will be spent.
A plan that has all the details, even the minor ones, will be greatly appreciated by the venture capitalists. Your plan should also showcase any predicted results, hopefully, positive ones, to convince the investors to finalize their decisions.
Beneficial Terms for The Investors
Flexible and favorable terms for the venture capitalists were rated as the most important factor of consideration according to a study.
The final agreement and deal structure between your company and the venture capitalists shouldn’t be to their disadvantage. In fact, venture capitalists would prefer to have participation rights, pro-rata rights, as well as redemption rights.
Estimated Profits Worth Ten Times The Invested Capital
Unfortunately, things do not always turn out as venture capitalists wished. More than half of their investments usually go to waste and do not give them any returns in five years. Therefore, to make up for their loss, they will only be willing to invest in businesses that show their potential of earning back profits ten times more than the initial funding.
Favorable Fit For Investment Thesis
Ultimately, venture capitalists are trying to boost their value and portfolio as well. This is technically not something you can control as different venture capitalists have different agendas.
But what you could do before accepting any capital is to go through their resume to see what kinds of businesses have they funded in the past and if any achieved success. If most of their funded businesses are in the same industry as the one you’re in, you can be more assured that they have experience in mentoring.
Reliable Leadership Capabilities
Ideas will only remain as ideas if they cannot be carried out efficiently in real life, not to mention leading a group of people to achieve the same goal.
The CEO of the company is hence extremely important and can make or break the venture capitalists’ decisions. So what does it take for CEOs and leaders to be effective?
They should be charismatic and inspiring. This means that employees look up to these people and believe in the same cause as them. Happy employees equal a more productive workplace environment.
They should also be able to perform under pressure and overcome obstacles. Life is always going to be unpredictable. Will the CEO step up and try to overcome the challenges? Or will he or she succumb to the immense pressure?
CEOs have to be reliable and trustworthy to instill confidence in venture capitalists.
A United Team
Wars are won by soldiers and not solely by the ruler. The same goes for the workplace — there is no “I” in “team”.
If the employees of a company do not work well as a team and show little passion for their work, you can bet that they won’t be able to achieve much success.
Ultimately, human connections matter, and venture capitalists invest in people, not just businesses.
Conclusion
Being noticed and funded by a venture capitalist means that your business has the potential to grow. To snag those opportunities, consider applying the 12 tips mentioned in this article. All the best!
