If you have been looking out for some venture capital to start a fresh business or come out of a financial crisis, then you are required to make a formal proposal for the same. The venture capital proposal that you make is thoroughly studied by the venture capitalists and they measure the pros and cons of the deal before funding it. So as an entrepreneur, you must plan wisely and that too well in advance to augment the probability of acquiring venture capital.
The Criteria for Scrutinizing Venture Capital Proposals
There are many factors that venture capitalists take into account before funding the businesses. The factors are listed below:
Fundamental analysis focuses on the basic examination of the business’s fundamental aspects without which the venture capitalist cannot even think of taking a decision. Now within fundamental analysis, there are several other factors that are studied
- History: A brief summary about the company, including its date of establishment, and a little information regarding the progress.
- Management: The motivation of the directors as well as shareholders and the quality experience plan is checked.
- Products: A proper description about the products or services offered by the company.
- Markets: The market that you are catering to with your products. Also, its size, location, nature, potential competition, unique selling points, and characteristics of the client base are analyzed.
- Manufacturing: operational aspects of your business which comprises of technology used, sources of supply, premises owned, as well as the manufacturing capacity.
- Risks: you must state the fundamental risks associated and your plan to deal with the same.
The objective of financial analysis when you make a venture capital proposal basically is setting out the financial outcomes of the firm’s strategy as well as measure the performance too. For finding out the financial feasibility of the project, the following aspects must be taken into consideration by a venture capitalist:
- Earnings growth prospective
- Sensitivity of earnings primarily for sales and margins
- Time difference between the investment and return
- Probable affect on cash flow
- Tentative value of the firm at the speculative of divestment
- Determining the financial risks as well as the management plants to handle it
It comprises of going through the venture capitalists portfolio and the balance at the instant when the venture capital proposal is made. Consequently, the venture capital proposal must incorporate details of the investment in terms of the size, development stage, and the geographic location. The aspects that are considered while venture capital proposal is made and financial analysis is done include:
- Size of investment: The portfolio’s size is primarily affected by the amount of the money invested. So, in case the large portfolio is made, the management would become a little difficult to handle.
- Stage of development: Aventure capital portfolio typically comprises of some firms in the development phase and others in a comparatively mature phase of the lifecycle.
- Geographic Location: In a bid to arrive to an acceptability level, percentage funds look out for foreign investments. The prime rule of a thriving international investment policy simply is to come in link with an organization with local fund as it will have a better market understanding, tax environment as well as social investment.
- Industry sectors: This point stands on the number four on the portfolio diversification. Almost all the venture capitalist segregate a portfolio to counterbalance the problems and slow growth investment.
This includes a clear perception to the venture capitalist regarding the method, time, and valuation of the firm upon divestment. Basically, there are four principal ways through which venture capitalists move forth with investment. These methods are:
- Trade Sale: It is the procedure of selling investment to a firm in the commerce i.e. you competitor is willing to buy investee’s production capacity or a customer moving backward is referred as a ‘trade sale’. It comes in a form of unsolicited bid.
- Take off:In this the investment is sold to another investor i.e. the other venture capitalist. This is done by the method of private placement that too with an institutional investor like pension fund managers. Here, basically a venture capitalist sells his share but the stake of entrepreneur remains intact.
- Earn out: Now as the project proceeds, entrepreneur buys the shares of the venture capitalist again.
- Floatation: Final route in which the securities are taken to the stock market. In order to move through, the firm must possess a good management team.
This is the complete process in which a venture capital proposal is made. Then the venture capitalist studies the venture capital proposal properly. And if there is any scope of profit, then the venture capital proposal is accepted.
Venture Capital Proposals: Get selected with Sound & Smart Planning
Although there certainly is no assurance that a small business will be able to acquire venture capital, but sound planning can work wonders in this case. If you plan wisely and that too in advance, then the chances that your venture capital proposal might get accepted increase manifold. Well, for this you need to start planning a year in advance. Conduct Venture capitalists can either be specialist or generalist investors depending on whether they invest in various investment sectors located at different places or not. rigorous market research and look for new business concepts. Also, the entrepreneur must take an initiative to develop a business around the concept with the backing of third-party such as financial advisors, attorneys, and accountants.
Six months prior to seeking venture capital, an entrepreneur must arrange and design a business plan that features the financial projection of the firm. Moreover, it is advisable that the entrepreneur should also start working on the request for funds. Three months prior to seeking venture capital, entrepreneurs should start looking for venture capital organizations. In addition, make contacts and try to reach out to those who may be interested in your venture capital proposal. Also, make detailed financial plans that throw light on the managerial competency as well as suggest benefits for the potential investors. Going as planned and making a strong venture capital proposal can get you venture capital for business growth easily and certainly.