May 9, 2010
Here is the question. I know you are a diligent entrepreneur and that you are working hard to raise enough seed capital to get your venture on track, but are you venture capital material? This will be a question that many venture capitalists will ask before they begin the due diligence process or even look at your business plan.
So, now, you need to become venture capital material and that can be a process. A company does not become venture capital material over night. To get to that stage to receive series A funding, you need to work and you will need to show promise to the venture capitalist and he needs to be convinced that your venture will produce a good ROI on his investment. Letâ€™s take a look at the following companies and why their investors decided to invest.
One of the more recent companies receiving venture capital this past week include Axtria, which is a marketing analytics startup based in Morristown, New Jersey. On Thursday, May 6, this company announced that it has closed $2.5 million in series A funding from Sequoia Capital India and other investors. So what did the investors state that was the crucial deciding role in them investing in this startup? Well, according to private investor, Richard Braddock; the market potential of the companyâ€™s product shows enormous potential. Now, what does this exactly mean? This means that the investors saw a good potential in the market for new technologies in sales and marketing analytics and believe that this company can produce a good profit in years to come. This is very important. Remember, venture capitalists invest other peopleâ€™s money and they are very keen on how they invest this money. The want to be sure that their ROI is worth their investment, which is the case in Axtria.
Managing Director of Sequoia Capital India, Sandeep Singhal stated that Axtria appears to be a leader in the market. In other words, its technologies are disrupting the market. This is more evidence that Axtria is venture capital material.
Another important thing you need to realize is that when you are looking for venture capital, you must anticipate that the investors you do business with will expect to have a seat on your board of directors. The board of directors is the governing body of the company and should include chief executives of your company and some investors. There is a caveat with this. The majority on the board of directors has the control of the companyâ€™s future and the fate of the companyâ€™s management. Though having a venture capitalist or two on your board of directors can be beneficial to the company, having too many outside investors can take the governing powers of the company from your company away from you. Now, letâ€™s get back to Axtria, notice that Mr. Braddock and one of the investors from Sequoia Capital India joined Axtriaâ€™s board of directors. This is good for a startup, because most venture capitalists and large private investors have connections with serious clients and other resources that can improve the performance of a company that is already performing well.
Now letâ€™s look at the criteria for investments that the venture capital or private equity firm is looking for and do you fit these criteria? Fitting the criteria is crucial for winning the investment from a vc firm. Letâ€™s look at the criteria for Sequoia Capital. The criteria are as follows:
A. Clarity of purpose. Does your company have a clear understanding of how and what it will produce?
B. Focus. How focused is your company?
C. Being frugal. How can your company manage its money and how far can it go with a small amount of money?
These are just some of the criteria on Sequoia Capitalâ€™s website. You also need to choose a vc firm with the same industrial, stage, and geographic preference that fits your company.
You too can be venture capital material, like Axtria. It takes work and sometimes this can be a stressful path to get to this stage. If you have the stamina, the strength, the ambition, and the will to make your company successful and you have big dreams, you can get there and become venture capital material.
All the best, and good luck!
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