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How Venture Capitalists Analyze Companies Essay

994 words - 4 pages

Case report: Venture Capitalist evaluations of potential Venture opportunities

What are the main requirements that these four VC look for when evaluating a new venture opportunity?

These VCs have analyzed and come to realize that the most important factor when evaluating a new venture is that there is an opportunity in a large market which is growing. VCs always ask and want to know where a company will be in the next 3-5 years. Usually, for a company to be successfully starting-up, they will have a constant revenue of a minimum of 100 million with a market potential of going up to 500 million dollars. This is for company’s with non-software based companies. When it comes to software ...view middle of the document...

They don’t want a big CEO behind these start-ups because they do not have the set of mind which is right for this kind of sector, especially in a fast-growing start-up in these kinds of markets at these early stages.

Investors want to know how the company will increase the value it gets from its customers. Of course, lets not forget they obviously want to know what the initial costs will be to build whatever it is that the company is proposing and the requirements that are needed. A precise approximation of the costs that will be incurred with a safety net in case costs rise unexpectedly.

How do they mitigate the risks of their investments in new ventures?

Venture Caps attempt to mitigate risk, depending on the type of start-up by either giving low amounts of investment for a start-up to create a prototype, and make tests to see if the product actually has potential. Not all the time though is this possible. They are sometimes “obliged” to invest bigger amounts in times where there is a lot of competition and little time to get a product launched. When other Venture Cap firms are interested in somebody’s product, there is a lot of pressure on these investors because they don’t want to miss out on these opportunities, but at the same time they don’t want to make an impulsive decision which could backfire.

Investors also like to pay a close look at the financial plans of these companys. They initially want to know if the financials that are in the business plan are actually realistic and in line with the business itself. They don’t want to see start-ups with un-realistic numbers because this will show the team doesn’t really know what they are doing and what to expect in the business side of the...

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