-
Private equity and venture capital, provides a vital source of finance
for growing companies across all industry sectors.
-
The industry provides long-term investment capital, contributing to
sustainable economic growth, generating employment, financing new
research and technologies and supporting promising growth companies.
-
Medium to long term investment
-
Investments in unquoted companies
-
Targeted at companies with growth potential.
-
The investors returns are dependent on the growth and profitability of
the business.
They usually
search by five variables ,and rank candidates by how well they meet
these criteria.
The variables are:
- Searching
by line of business: Most venture capitalists specialize in one or
more industries. It's the focus on a particular technology, industry
or business that supposedly allows them to pick winners in their
formative stages. This specialization is good news because it lets you
easily identify venture capitalists who should be interested and those
who should not.
- Searching
by geographic preference: The very hands-on approach of
institutional venture capital investing makes distance a factor. That
is, to be a board member, and perhaps be intimately involved in a
company's development, a venture capitalist would find it difficult to
invest in companies that are 2,000 or 3,000 miles away. Many do, mind
you. But more venture capitalists stick to well-defined geographic
regions such as the mid-Atlantic region, the Northwest, the Southeast
or perhaps a particular state. Search your source material and weed
out venture capital investors who do not look at deals where you are
located.
- Searching
by stage of development: In the same way that venture capital
investors specialize in one industry or another, they also specialize
in differing stages of development. That is, some companies invest in
early-stage companies, while others invest in more mature companies.
This should intuitively make sense. After all, from a venture
capitalist's standpoint, a company that is trying to make a better
mousetrap requires much different care and feeding than one that has
already figured this out and is on the brink of national distribution.
- Searching
by leadership status: In the world of venture capital investing
there are leaders and there are followers. The leaders, also known as
"lead" firms, are those that have recognized expertise, and who
conduct extensive due diligence on their prospective portfolio
companies. The followers, known as "follow-on" investors, are more
passive. They simply invest alongside the lead firms. Lead firms can
be helpful when you are trying to raise your second, third or fourth
round of venture capital because their presence alone can attract
other investors for these later rounds. They are no help when you are
trying to raise your first round of venture capital. Review your
source material and weed out the firms that do not act as the lead
investors in deals.
- Searching
by deal size: Institutional venture capitalists generally place
upper and lower limits on the sizes of their investments. These limits
are closely related to the overall size of the fund the venture
capitalist is managing. venture capitalists with $250 million to
invest typically don't want to look at your $500,000 deal. Why?
Because to invest the entire fund in $500,000 increments means the
firm would have to invest in 1,000 deals. VC`s look at 2,000 business
plans each year to invest in an average of 10 companies. To do 1,000
deals, he would have to look at 200,000 business plans.
|
