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VI. WHAT DO VCs LOOK FOR?

Venture capitalists look for businesses that have the potential to grow quickly to a significant size, yielding a significant return on the VC's investment in a relatively short period of time. VCs are not just interested in start-ups. Your company's current size is less important than its future aspirations and growth potential. A target company for a VC is one that may be capable of becoming a large market leader in its industry due to some new industry opportunity and competitive advantage. There's no singledeterminant for a successful portfolio company, but a VC tends to focus on the following factors:

Like a banker, a VC will also consider factors such as results of past operations, amount of funds needed and their intended use, future earnings projections and conditions. But unlike a banker, a VC is a part owner rather than a creditor, so it's looking for potential long-term capital, rather than interest income. A common rule of thumb is that a VC looks for a return of three to five times its investment in a five- to seven-year time period.

A lot may also depend on the relationship between you and the VC. Often, the firm will have you meet with every one of its individual partners to determine whether there's a consensus on how the company will be co-managed. Don't underestimate the value of mutual respect, teamwork, and understanding.

 

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Table of Content
I. What Is Venture Capital
II. The Funding Process
III. Types of Funding
IV. Non-Disclosure Agreements
V. Term Sheet
VI. What Do VCs Look For
VII. VC Exit Strategy
VIII. Conclusion
Venture Capital 101