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Pankaj Jain
M.com, FICWA, ACS, MIMA
Director & CEO
Finman Ventures Consulting Pvt. Ltd. We do the things differently
Critical factors for obtaining Venture Capital
Published in Booklet Issued at ICSI Seminar on Private Equity, January 17, 2009
Venture Capitalists are higher risk investors and they desire a higher return on their investment,
in accepting these higher risks. The venture capitalist only invests after having completed
extensive assessment of business opportunity they are going to invest in and that fits to their
investment criteria. The investment criteria may differ to different venture capitalist and such
differences may relate to the location of the business, the size of the investment, the stage of the
company, industry specialization, and structure of the investment and involvement of the venture
capitalists in the company's activities.
There is nothing more powerful than the vision and passion of an entrepreneur. But sometimes
passion and passion are just not enough. It helps to understand the criteria that venture capital
firms use to decide which companies to fund. The entrepreneur should not be discouraged if one
venture capitalist does not wish to proceed with an investment in the company. The rejection may
not be a reflection of the quality of the business, but rather a matter of the business not fitting with
the venture capitalist's particular investment criteria. Below is a brief summary of these critical
criteria. If you meet these criteria, you may be able to continue to the next step in the venture
funding process.
Reliable Idea
All entrepreneurs believe their idea is reliable. The reality is that very few are able to present
business idea that is unique. It is very common for investors to see multiple versions of the same
idea over the period of a few months and then again after a few years. What makes an idea
compelling to an investor is that it reflects a deep understanding of a big problem and offers a
viable solution. The idea alone does not make you eligible for venture funding. You have also to
possess the other reasons as followed below.
Market Opportunity
If you have market opportunity that is technology based, you probably are right fit for venture
capital. The venture capitalists are focused on businesses that gain a competitive edge and
generate rapid growth through technological and other advantages. You should be targeting a
sector that is not already crowded and there is a significant problem that needs to be solved, or
an opportunity that has not been exploited, and where your solution will create substantial value.
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Competitive Advantage
All viable businesses have good competition. Competition is not just about direct competitors; it
includes alternatives and other better solutions. You need to convince investors that you have
advantages that address all these issues, and that you can sustain these advantages over period
to come.
Team
You may have a great idea, but if you don’t have a strong core team, investors aren’t going to be
willing to invest in your idea. The founders must have the ability to launch the company and
attract the good talent that is needed to execute the idea successfully. The entrepreneur alone,
even with all the vision and passion, is never enough.
Financial Projections
If the idea of developing reliable financial projections is waste of time for you, you shouldn’t ask
investors for money. Your projections must demonstrate that you understand the economics of
your business. They should tell your story in figures—what drives your business growth, what
drives your profit, and how your company will evolve over the next few years.
Validation
Is there any evidence that your solution will be interesting for your target customers? Do you have
an advisory board of reliable industry experts? The more reliability and customer interests you
have, the more likely investors would be interested. To be successful in obtaining venture capital,
you need a good grade in all areas. There is a tough business environment today, so please don’t
waste your energy and time with a business plan that is not reliable and compelling. We are
interested to support all visionary entrepreneurs.
The information contained herein is of a general nature and is not intended to address the circumstances of
any particular individual or entity. Although we endeavor to provide accurate and timely information, there
can be no guarantee that such information is accurate as of the date it is received or that it will continue to
be accurate in the future. No one should act on such information without appropriate professional advice
after a thorough examination of the particular situation and FINMAN will not be responsible in any
circumstances, whatsoever.
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