Some Basic Facts Regarding VC Funding (Part III)

In this section we will be covering the key elements that are studied by the venture capitalists before financing an organization. This is the most important section as it covers the points that emerging entrepreneurs must keep in mind while to approach Venture Capitalists for funding. Apart from the idea being brilliant and unique if these factors are covered then more often than not the funding is sanctioned.

Management Team: Management team is the team which is the face of the company. Speculations regarding the success and failure of the companies are made depending upon the members of the management team. They are supposed to be the key stakeholders of the organization and their strength and expertise bring a significant amount of credibility to the company. It is very important that the members are mature, have experience and possess working knowledge of the business, are team players and are capable of taking potentially high risks.

Capital Gain Potential: While funding an organization Venture capitalists look for an above average return of about 30-40 per cent. The rate of return cannot be fixed at a particular number as it depends upon the stage of the business cycle where the funding is done. The rate of return is directly proportionate to the risk and the risk is depending upon the stage. So the earlier the stage, higher is the risk and so are the returns.

Realistic view of the company's financial requirements and projections: While mulling over the prospects of financing a company the venture capitalists look for a realistic picture of the financial health of the organization. They also look for future projections regarding the scope, nature and performance of the company in terms of operational scalability, operating profit and research and development cost and cost of production development. Any information which is blown out of proportion and or falsely presented might hamper the prospects of funding being approved by VCs.

Financial stake of the Owner: Owner's financial stake is the finance provided by the owner from his personal sources. These sources include funds invested by family, friends and relatives. It plays a very important role in increasing the viability of the business and is a very important avenue where the venture capitalist is looking at.

It is very important that all the factors related to the above mentioned four points are defined thoroughly without any ambiguity before approaching Venture Capitalists. The chance of getting funding depends a lot upon how well these points are covered and defined in details.

Always remember that there are many hopeful applicants who try to get funding from Venture Capitalists and the window of opportunity is very small. The first meeting is very important and can be the game changer if prepared properly. In this article, which was divided into three parts, I tried to cover all the basics regarding Venture Capitalists. Hope this information helps you prepare yourself before contacting a venture capitalist for funding your business.