What factors of a business are more likely to attract venture capital?

Hi Tom:

I think Andy hit most of the key areas, but the one that I would add is a STRONG Management Team. VC's, PE Groups and Angels all need to have confidence that the venture they are funding has the right human capital to execute the plan. The VC's may not even read the entire business plan so what the plan is may not always be as important as who will be executing. Often times they will read the summary, spend time on the financials then really get to know who will be executing the plan.

Regards,
Rob

Rob and Andy have already picked the most important issues but unless a company truly has defined their target/niche market and understands its demographics and dynamics then the potential for good profits or having great management to execute will all be for nothing. That is why I recommend to those seeking funding that they specifically contact potential VC, PE or investors with prior experience in their market. that selection process needs to be a 2 way street to maximize everyone's chances for success.

I practice as a CFO consultant in Silicon Valley to venture and angel backed companies. I also work with an angel group coaching companies in their presentations. With this background working with many companies, I present the following observations for firms that seek venture funding:

It is critical to be able to present your business idea in such a compelling way that a potential investor not only gets excited by what you are doing, but in fact makes the investor believe that he/she will miss the boat if they do not invest now. Be advised that very few business ideas will fit this criteria and it is a major reason who so few startups get venture funding. Good ideas poorly presented may get lost in the shuffle.

If you do not know any venture capitalists, your chances of funding fall. It is best to either know the VC from prior association or be introduced by someone they know and trust. This will get their attention among the many thousands of plans a large VC firm will see each year.

If at all possible, have a "team" that includes credible executives in each critial function, i.e. CEO, VP Marketing, VP Sales, VP Engineering. Backgrounds must be verifiable and will be checked as part of the due diligence process. The VC does not want to run your business and will support a strong team as a differentiator. The more successful companies represented in your team, the better.

VC's can invest at all stages including raw startup through near IPO. Seek venture funding at your first opportunity regardless of what you have accomplished, as it is the strength of your idea and team that will garner the investment. Keep refining your pitch and plan based on what you learn from each visit; keep in touch with those who did not invest now but are interested. Keep them informed of your progress. Seek introductions to VC's that invest in your field. Persistance will pay off in time. Avoid seeking funding for three or four months before a critical business milestone, as funders will wait until you have crossed this milestone before making any investment.

Good luck with your fundraising.

There's some great advice above. The only thing that I would add is to be able to show you have access to a team of expereienced advisors or an Advisory Board in place.