Entrepreneurship Industry News

6 things Venture Capitalists look for when making investment decisions

No matter what field and industry you may consider, raising capital or looking for funds is the most difficult challenge for most entrepreneurs. Often, traditional lenders will not approve a business loan and boot strapping might not be a viable option – this brings in the need for VCs (venture capitalists).

With Startup India in bloom, venture capitalists have also emerged across the country to fund startups in bringing their dreams to fruition. However, it might be important to note here, that according to Harvard Business Review, less than one percent of companies in the US have raised money from VCs. So, it is imperative to understand what the crucial factors are that pique a venture capitalists interest.

1. Business partners and their characters
You may have the best idea anyone could have thought of but without the right team to execute, your idea may never get to see the light of day. The people behind an idea, or company and their character is extremely important to VCs. Investors need to feel confident in the abilities and characters of the team members therefore enthusiasm and love for their vision scores really high. One needs to be honest, reliable and have a good work ethic to germinate a long-term relationship.

2. Experience and capacity
It is important to place qualified, meritorious people for the required job, filling up roles for the sake of it is not a good idea. Don’t make someone with limited financial experience your CFO, that’s just disaster waiting to happen. The team should possess the potential capabilities to grow the business and carry it to greater successes. Past track records and experience plays a major role in building VC confidence in the founding team.

3. Ideas that are innovative
To get the attention of VCs, who receive several pitches a day, you definitely need to be fresh and stand out. Something unique and innovative will at least get their initial attention so that you could further indulger their interest. Your idea need not be new, it could just be something that no one has succeeded doing before. You might want to bank on research and development as that could be used to pique VC interest to even consider whatever it is you are pitching to them.

4. Benefit to the community
Commuting became easier when Uber came around, Airbnb did the same thing for travel-stay and so on. While the startup failure rate is pegged anywhere around the 80% and above mark, notice how all successful startups succeed because they solve a problem. Your chances of attracting interest are much higher if you can bring value to the community or humanity in general. If your product or service is the answer to a large-scale problem or a problem that a large percent of the population faces, you have a better chance of attracting interest.

5. Sustainability
While short-term ideas could be profitable, typically, VCs look for something that promises longevity. VCs fund with large amounts looking to get returns that are even more, hence, they focus on long-term sustainability of your product or service. Hence you luck of getting any sort of funding also depends a great deal on the shelf-life of your idea.

6. Profitability
At the end of the day, it is a business, hence, VCs are investing in your idea only to make money. Like this list, financial outlook may be the last thing a venture capitalist looks at, however, it is the final checkbox before he or she decides to invest in you and your company. Your idea needs to make financial sense to VCs and their money should not be held too long without returns. Their concern is when will it become profitable so as to take the returns from the initial investment and re-invest in other ideas/companies.

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