I am still on to bettering your knowledge and mine in investing; more so investing into companies that want to enter the blockchain sphere. I have noticed that most if not all these early stage companies have sourced capital from an angel investor if not more closely, a venture capital firm. So I set out to get into the mind of a venture capitalist. What things does a V.C. look out for before giving funds to a startup? This I believe will give us an edge in finding the best ICO among the thousands of ICOs that set are before us. Let’s get started.
A V.C. checks if the business has a proven business model; do they have paying customers for their service or product? It checks if the business has clearly defined its market, if this market segment is upward moving and that the business will dominate this segment by having a superior technology, a super management team and/or barriers to entry via e.g. a patent or copyright.
A V.C. checks the state of the financial information of the company; the revenue of the company over a particular time period, the amount of profit generated over for example one year, the amount of costs incurred to offer the service or product and ensure revenue flow, the amount of debt the company has and if there is already issued equity.
By considering the circumstances the business has grown and thrived, V.Cs mostly are out for a very good revenue reporting, high profit margins and a low cost per product. V.Cs will run to the hills if they find debt in a business’s books. This means that most of the cash will go into paying existing debts not planned for.
A V.C. checks if the business has the right management team in place, are the right people employed to advance the vision of the company? Execution of the intended plans can be hampered if the team does not have the requisite experience in the industry the business is launching. This is a point shared even when checking into ICOs.
A V.C checks if the company has developed the right relationships or connections to gain an audience and set itself for success. A business should be able to show its mettle by the connections it has made in its industry. Attention is likely to be got if for example the business mentions of exclusivity of supply to a given big retailer or a partnership with crucial provider that can add viability to its product.
A V.C checks if the company has created value over time in how it has improved its plans and processes and if it has perfected its marketing and service areas. It will be of great note to see how a business has superseded its competition by offering innovative solutions that set is a market leader.
A V.C looks at the likely return on investment and evidence to prove it, the inherent risk the business idea faces and how to manage this risk. This needs the business to clearly articulate the risks and challenges it is likely to face including its strengths and weaknesses in the business segment that it will venture. So the V.C will look out how the business will tackle the risks and weaknesses.
A V.C. will ensure that it has done due diligence on the regulatory path of the business, the protection of the product via patents or intellectual property and if the business truly owns the technology in use. All these ensure the business will remain viable in its intended market.
A good V.C. will connect with the business seeking funding. A relationship will be fostered that will ensure that all parties benefit. If truly the V.C. wishes to get a good return over a short period it will also invest my mentoring the founders, bringing on board experienced advisors and assist in bolstering the management talent if not the technical talent when need be.
So here it is. I wish that this information be continuously used and refined. Let’s meet in the comment section. I would love to get your views.
