Venture Financing: Process and Selection Criteria

A potential investor will initially spend only 5 minutes with your plan. The following areas will be evaluated, each area taking about 1 minute!

1. Determine the characteristics of (1) the industry and (2) this particular company.

• What other publicly held similar companies are there?

• Is there a larger company that is extremely successful?

• Is the company in a 'glamour field'? (important to ensure a good public offering)

2. Determine the terms of the deal.

• How much of the company is being sold for what price?

• What is the form of debt or equity being requested?

• How will the funds be used?

o To retire old debt (bad idea)?

o To undertake new activities that will, in turn, increase profitability?

3. Review the bottom line with special emphasis on years three through five.

• Earnings or potential earnings are reviewed to determine company's valuation.

• Sensitivity analysis, or what if analysis to see how the business model adjusts to changing prices, expenses and competition.

Venture Financing: Key Documentation To Be Prepared by the Entrepreneur

4. Determine the caliber of the people in the deal. (The most important aspect of the business plan!)

• What is the track record of the founders and managers?

• How much balance and experience does the inner management team possess?

• How long have the members worked together?

• Who are the banker and accountant, and what are their credentials?

5. The marketing plan is reviewed with careful consideration to current and future threats.

• Is the product or service in demand now or will it be in the near future?

• What is the Unique Selling Proposition for the product?

• What other company or companies are already in this space that could leap frog this business?

• Can the customer be easily identified and marketed to successfully?

QUESTIONS ANSWERED BY THE BUSINESS PLAN

1. How much can I make?

2. How much can I lose? (including loan guarantees, opportunity cost, and non-financial considerations)

3. What is unique, innovative or technologically different?

4. What is the perceived value of your product versus what your product actually does?

5. Why will everyone need your product or service?

6. What will happen to your customers if they don't buy your product or service?

7. Who says this is a good investment?

While a well prepared business plan is never a guarantee that your business will be funded, it can increase the odds in your favor.