If you are thinking of starting your own business and want to get funding from venture capitalists or angel investors, there are some important things to think about, to increase your chances of success.
Venture capitalists engage in pattern recognition. They listen to many business plans and pitches and see many successes and failures. Over time they develop an ability to recognise patterns that occur in successful ventures. What you need to do, is understand what patterns they typically look for and develop/position your business idea as a new instance of such patterns. Here is what you need to keep in mind and think about:
- Quality of management: The management team is important because investors want to be assured that when things go wrong, the company will be able to cope properly. They will look for signs of integrity, adaptive capacity, passion/motivation, number/depth of contacts and relevant experience
- Value proposition: Is your solution/service/product a vitamin or a pain pill i.e. is it a nice-to-have or does it solve a pressing need for your target customers? Look not only at the product offering but also at the buying experience and the usage life cycle. How can you add benefits and/or eliminate costly benefits with little value?
- Target market attractiveness: The market segment that you are targetting should provide a large enough customer base and attractive margins
- Opportunities for growth: Is there enough opportunity to reap the benefits of economies of scale and scope. In the end you need to provide a return of 3-4 times the investors initial outlay
- Competitive advantage and barriers to entry: How long can you hold off competition and is there anything about your business that they will not be able to replicate
These are some of the key issues to consider when starting a new venture and seeking funding. Each of the points covered has many aspects that need to be dealt with and there is too much to cover through articles. However, I hope this provides you with some good food for thought and sets you off in the right direction.
Source: Sandbox Advisors, INSEAD
