VC Screening Criteria

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There are many factors that exist by which venture capitalists will use to screen the investment potential of your company. By understanding such factors, companies can better prepare for questions that may be asked and structure the business around such criteria early on to potentially increase its probability of success. As you will see, there are many factors that must be considered aside from the business plan that Pro Business Plans cannot directly help with. The company is readily available to provide financing advisory for its existing client base, but many of these screening criteria are exclusive to your business model and fundamental changes may need to be made in order to increase the chances of success in not only the financing marketplace, but also the potential long-term profitability of your company. This blog post is dedicated to communicating the screening criteria applied by venture capitalist groups at a brief level.

 

Management Team

When investors review the management team of a company, they are searching to determine whether or not they are capable of running the company. In some cases, people that are not qualified to run a company manage to produce a profitable product. Because this has historically been the case, founders are often removed from leadership positions soon after a professional investment group is introduced. However, in most circumstances, the existing management team will need to bring the company to a point in which third-party management may be acquired. Moreover, the management team often quickly communicates the sophistication of the market solution proposed by the prospective company. If a senior engineer at healthcare company produces an advanced health screening technology, it is likely to be taken more seriously than a newcomer with no experience in the healthcare sector. Having a strong management team is a reason to analyze prospective investments in more detail, as investors assume that those who have had success in the past are likely to replicate it in the future.

 

Business Model

A company’s business model is what fundamental market problem that it addresses and how it anticipates to profit from its solution. Although some companies have received financing without a fundamental revenue strategy, lack of a clear path towards profitability means that there is a chance investors will never have their money returned. There are few things more frightening to investors than the loss of their money and nothing makes them more evasive than a business model that fundamentally lacks any revenue generation potential. The best approach to avoid this situation is to choose to enter markets that have profitable potential or at least determine a clear path to profitability before presenting anything to investors.

 

Geographic Location

In some cases, the geographic location of your business will determine whether or not an investor’s fund permits him/her to invest in your company. Statistically, most venture capital funds are directed to the United States, namely the San Francisco and New York metropolitan areas. The geographic location is also important to investors because it typically dictates what resources that the entrepreneurs in the market. A startup located in a dense urban area is more likely to have a wider access to a talent pool, strategic partners, and professional advisers than one in a highly rural area.

 

Competitive Advantage

Perhaps the most important consideration when screening an investment is its competitive advantage. A competitive advantage can be either political, such as market protection through patents or permit restrictions or artificial through branding or product positioning. For instance, the Coca Cola brand has a strong competitive advantage because of the reputation that its brand has established in the market relative to new soft drink producers. The competitive advantage of Pro Business Plans is that it is owned by a larger consulting firm, which means that you can yield the same resources as large companies with an international presence, while not being being charged the outrageous retainer fees as boutique investment banks.

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