If you want to obtain venture capital, spend the time to understand the following criteria, plan, then work hard to present your investment opportunity in the best possible light. Keep in mind that VCs see a ton of opportunities and often decline to invest in companies they think would be good investments.
1. Some sort of differentiated, proprietary technology/competitive advantage. You need to be able to convince VCs that your idea or company is differentiated from the current masses as well as those that will inevitably come to market if it is such an attractive market. Spend the time to understand how your idea/product/service is different from what is currently being offered and make sure it is a material and valuable difference.
2. Large addressable market. VCs invest in companies that are going after very large markets. How large? We’re talking annual, aggregate sales in the hundreds of millions to billions of dollars. Most entrepreneurs make the mistake of assuming "available" equals "addressable" when calculating the size of the market they want to sell into. Be realistic here and spend the time to understand that market segment with the total available market that you can pragmatically sell into, near-term.
3. A clear plan, budget, and use of proceeds. While most VCs are willing to overlook the fact that such a clear plan may not have been articulated in writing if they can see it for themselves (under the principle of "been there, done that"), you should have at least thought through how much money it will take to bring the product/service to market, have an idea on how you might actually go about achieving such results, and how—if funded—the money will be spent.
4. Manageable risk. VCs are "risk masters" and attempt to create value through the calculated and systematic reduction of the technical, market, financial, and operational risk found within startups. Some funds take bigger "leaps of faith" than others, but almost all VCs focus on this aspect of the business from the first day.
5. Strong team able and willing to work with the VCs. The more empirical evidence you can show that you/your team can succeed, the better your chances of attracting and obtaining venture capital. This criterion is a bit more nebulous than the others in that funds differ on how they judge the strength of the individuals involved. The entrepreneur/VC relationship is a marriage of sorts in that you will be working closely with your VC for an extended period of time and VCs must want to work with you and enjoy working with you.
President, Orange County Venture Group
Co-Founder and Managing Director
Okapi Venture Capital
Laguna Beach, Calif.
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