FAQs: Attracting Venture Capital
What Do These Investors
Look For?
Venture capitalists focus
primarily on the potential for a handsome return on
their investment and are, therefore, only interested in
those businesses which appear to have a potential for
very high growth. Research shows that venture
capitalists invest in just one in every four hundred
business projects submitted to them.
What Do They Want in
Return?
To protect their investment,
venture capitalists expect to be able to make their own
management appointments and take one or two seats on the
board of directors of the company in which they are
investing.
They usually intend to
realize a return on their investment by selling their
stock and other equity, at a profit, after between three
and ten years. However, venture capitalists recognize
that, unfortunately, not all companies will turn out to
be profitable enough to enable the full return of their
original investment. Indeed, even with careful
selection, between 20 and 90 percent of companies fail
to yield the full return on VC investment capital.
How Do VCs Minimize Their
Risk?
Venture capitalists attempt
to minimize their risk by maintaining an investment
portfolio in a diverse range of businesses in different
industries and different countries. This spreads their
risk so that the poor performance of a company in one
industry sector is offset by a strong performance in
another, and an economy that is at the bottom of the
economic cycle in one country is offset by a booming
economy in another.
Some venture capitalists
further minimize their risk by only investing in those
businesses with which they are very familiar and already
have a track record.
Raising money is tougher than ever. If you are going
to raise from VCs, then you need at least a 30% annual
return and be willing to give up a lot of ownership
and control. Getting a good, experienced Austin
accountant
on your side early will make all the difference.