¶ … parameters, there are five general traits of attracting venture capitalists that should be assessed and analyzed. In no particular order, they are scrutinizing your business with a critical eye, beefing up of management, keeping up a high profile, targeting of the search, keeping a lookout and the investigation of possible venture partners. The author of this report has been asked to determine and explain which step is the "most difficult" for an entrepreneur to completely and why. Subsequent to that, there will be an explanation of how to attract venture capitalists while making the foundations of the business in question strong.
Of the five mentioned above, the one that would seem to be the most difficult would be keeping a high profile. So much of life and business is about managing perceptions and most people know full well that perceptions are subject to just that…perception. Venture capitalists are obviously trying to weed out the good opportunities and appearances are obviously made to be deceiving a lot of the time. To combat this and to make sure that the venture capitalists take notice, the beefing up of management and keeping the business running very well are extremely important, even more so than getting on the radar of venture capitalists. Indeed, if the fundamentals and details of the business are paltry and poor, the venture capitalist will gladly move on to the next prospect if there is even a sniff of malfeasance, poor fundamentals or deception. They key is to have a strong business that can be sold to others and that the details presented during that sale are actually realistic and attractive to venture capitalists. To put it concisely, venture capitalist are attracted by a good image and sales job but there has to be substance (Entrepreneur, 2005).
Venture Capital & Angel Investors
The author of these responses is now to look at the conflicts and issues that arise between venture capitalists and angel investors. The author of this report will offer three different forms of conflicts and issues that arise between angel investors and venture capitalists as well as two ways to mitigate such issues. Before getting into the conflicts, it would be informative to look at what angel investors are as this would inform why they happen to often butt heads with venture capitalists. As explained by Richard Harroch, angel investors have six basic things they look for, those being the quality/passion of the founders, the market opportunity that is being addressed, a clearly thought out business plan, interesting technology/intellectual property, appropriate valuation and the overall viability of raising additional financing as progress is made (Harroch, 2015).
One issue that could arise is angel investors, per the Harroch story, typically only invest 25k to 100k and that is really not a lot of money in the grand scheme of things. Placating and satiating a modest to large group of angel investors may be hard to pull off. Second, not all venture capitalists are about integrity and commitment. They are more focused on returns and the dollars/cents behind the deal. Third, the aforementioned "reasonable terms" and the expectations related to the same are obviously going to vary from person to person. The ways to deal with that is for the startup to be brutally honest about their plans and that they are not really interested in investors that see things differently as they wish to have an investor/manager alignment. Second, limiting the amount of overall investors (angel or otherwise) is probably a good idea for logistical and management reasons (Harroch, 2015).
Financial Statement Perceptions -- Owners vs. Investors
The author of this report is now asked to assess how financial statements figure into the venture capital paradigm including what an investor would tend to seize on in terms of financial ratios and statistics and what an owner would do when engaging in the same analysis. To state the obvious, an investor is generally going to be looking at metrics that lead to returns on their investment including profits, dividends and the like. An owner may be focused on that but there is a good chance they could be focused on other things like business mix, research and development, the longer haul rather than short-term gains and so forth.
When it comes to investors, they're going to be looking at overall profits margins and profits in terms of dollars and proportion...
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