What investors look
for when investing in 
a venture capital opportunity

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Opportunity 
Assessments

Each investor is unique. Different types of companies in different lines of business appeal to different investors. That's one of the reasons that the financing business is so dynamic and exciting.

empower Management can facilitate financing, but that is not our mainstream business. Our focus is to help our clients become the best organizations they can, and achieve their true potential. Funds infusion does not necessarily make that happen. However, if you feel that your organization is under capitalized, and you feel that attracting investment is key to your success, here is how you can evaluate your chances at attracting that funding.

Ask yourself these questions:

Is my company solvent, and is does my balance sheet reflect a thriving organization? 

If the answer is yes, then identify why you need the funding? Is it for capital equipment purchase or expansion? Is it for business development of a new market, or enhanced penetration of your existing market? Does the opportunity you see justify investment by a third party, and will they see the opportunity in the same way?

If you have answered no to the above question, you need to identify why debt financing is going to be worthwhile? And you mustn't stop there. No investor will wish to finance debt, unless you can provide justification that their investment will provide sufficient means to turn the organization around and succeed. The above questions associated with a positive balance sheet still apply. You will just have to work a bit harder.

What are my assets? Tangible and intangible, such as intellectual property?

Investors will be interested in what comprises the business. In other words, what does the organization own? 

Property, equipment, good-will and other intangibles, such as intellectual property, are all taken into consideration. Further, with the prevalence of development for the high-technology industry, intellectual property and its protection as an asset has become critical. Investors are likely to look very closely at the stability of the staffing -- the human resource assets are the vessels of the intellectual property and they are critical to giving it life. Therefore, they too can be considered assets in the non-traditional sense.

Does my business deliver a product, service or solution that is proprietary? Can it be patented?

Not unlike the human resource identified above and the intellectual property they represent, investors also want to know that their investment can be protected by copyright, trademarks and patents. This slows down any potential competition from copying the idea, solution or technology outright. Reverse engineering is big business. If a concept can be legally protected, then investors are more likely to want to invest -- and you will have the comfort of a few more years' breathing room before a competitor can threaten marketshare. 

What is my market opportunity? Is the market clearly defined? Can I identify my competition and the barriers to entering or capturing significant marketshare of that market?

Investors will want to know that you understand your business, your industry, your marketplace and your competition. Yes! there is ALWAYS competition, even if it is not direct. Indirect competition can be insidious and become direct competition overnight if you aren't vigilant. Consequently, be brutally honest about the potential for competition, and where it may originate.

Further, there is no such thing as perfection. You may be proud of your organization and of your ideas and technology, but arrogance is a sure route to lost opportunity. Conduct a brutally honest SWOT (strength/weakness/opportunity/threat) analysis on your business and on your solution. Understand where you fit in the industry and how you compare. Be cognizant of the fact that you may need to alter your business model, your product positioning, remove ineffective staff and hire new, and so on. Nothing can be sacred in this process.

If you cannot conduct these evaluations impartially, then enlist the support of consultants to do it for you. It can mean the difference between success and failure of the business, let alone in convincing investors to part with their hard-earned money.

What am I willing to give up in order to receive the funding?

An investor is going to want to have a stake in the success of your organization. Depending on the amount of money invested, that stake will vary. Make sure that you have a clear idea of what you company is worth. Be realistic. Further, be clear on what you are willing to part with for what level of investment.

Where do I want to be when my organization has achieved its goals through the funding -- in other words, what is my "exit strategy"?

At some point everyone needs to be able to move on. Dare to dream a little and assume for a moment that you can have whatever you wish. Plan for those eventualities and make sure that your investors are aware of them.

If you are new to the area of 
venture capital funding, you may wish 
to review this Glossary of Terms 
to clarify any grey areas.

If you are an investor looking for independent due diligence,
ask empower Management - see our Opportunity Assessment
on-line general overview for details