For innovative, new companies, venture capital can prove an indispensable asset, fueling growth and expansion plans and helping to bring products to market successfully. Venture capital firms review hundreds of proposals a month, and they typically accept less than 2 percent of those proposals. A successful bid to a venture capital firm requires diligence, business acumen, and knowledge of what potential backers seek.
Two criteria vie for the top spot at most venture capital firms: Is the idea marketable and does the firm’s management have the skills to make the company successful? Since the financial crisis of 2008, venture capitalists have held applicants to stricter standards regarding these criteria, so a start-up needs to have a solid base before drafting a proposal.
Factors that can show the marketability of an idea include a detailed business development plan, a working model of the product, or a proven technology, depending on the industry. Entrepreneurs working in a high-tech field, like pharmaceuticals or information systems, will need to prove that the mechanisms work, and they will also need to describe what they intend to do with the technology. Companies in more traditional industries will need to have a fully developed product along with leaders who offer a clear vision of the market, demand, and competition.
Venture capital firms measure the strength of a prospect’s management in several ways. Individuals’ track records, their business development plans, past experience, how they addressed problems, and a range of other factors come into play. Entrepreneurs looking for venture capital need to pay special attention to building the best management teams possible and to developing the structures of the business in such a way that each manager’s talents can be best utilized. A divided company rife with in-fighting, or a firm whose leaders have trouble keeping the company organized, will have trouble attracting funding.
Any company leaders thinking of applying for venture capital need to fulfill these two basic prerequisites before progressing further. Once those factors are in place, a number of other criteria need to be met, which will be discussed in my next post.
In his career in the venture capital field, Scott F. Gelbard has prioritized strong management teams with the ability to take an idea to market. He currently lives and works in the Denver, Colorado, area.