What do venture capitalists look out for before they decide on giving you a loan?
Contrary to popular belief, venture capitalists are not impressed by young geniuses who have a brilliant idea. They also assess the marketability and business model behind the idea. So what they look out for is an entrepreneur who has been around for a while and who knows the ups and downs of the business.
Earlier, venture capitalists based on their decisions on revenues and figures. However, times have changed and the new breed is more focused on the customer. When you pitch your product or service to a potential investor, be ready to explain why you think your product or service would compel the customer to buy it, what kind of problems are solved by the product or service and whether it is value for money. You also need to convince an investor that your offering is better than that of your competitors.
As an entrepreneur, even you will be under scrutiny. Venture capitalists will assess if you have the dedication and passion that will make your business a success. They will see if you have the courage to stick on even when the going gets rough. When pre-determined plans do not work out, an entrepreneur should be willing to improvise and adapt as quickly as possible. If you are setting up a business, you should have invested some capital into it to convince a venture capitalist that you are serious. You should have a team in place that can demonstrate that they can collaborate effectively. Both you and your team members must be willing to learn in order to be able to succeed. If you and your employees are from within the same industry, the chances of impressing the investor are higher. This is because you would already be equipped with some of the skills and background knowledge related to the business.
Finally, the strength of your idea is one of the most crucial deciding factors. An investor would be willing to risk their money only if they feel your idea is solid enough to bring in considerable returns. Venture capitalists also check if your business model is expandable, repeatable, profitable and predictable. If you find that you or your business lack any of the criteria mentioned, fix the gaps before actually approaching an investor. The additional effort and time will be worth it since it will boost your chances of getting funding.
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