Venture Capital Selection Criteria


How do investors evaluate and select companies to invest in?

  • Market Potential - The investor will assess the venture's potential to grow rapidly and into a large successful entity. VC's like to invest in huge horizontal markets where the company can dominate its space.  A company should have the potential to grow to at least $100 million in revenue in five years to receive serious VC consideration.
  • Management Team - The investor will assess the quality, capabilities and completeness of the management team. For a company to earn a top score in this category, it will present a complete or nearly complete team of "A" players. These are people who have previously started and built successful companies and are known as industry stars.  It is most helpful if the entrepreneurs have been previously backed by venture capital and have made money for those investors.
  • Products and Technology - The investor will assess the quality and completeness of the venture's key products and core technology. The most fundable companies will be able to demonstrate shippable products thereby reducing the technical risk of the investment. Ventures who have developed intellectual property that can be protected by patents are more likely to receive funding.
  • Competitive Position - The investor will assess the venture's competitive strength and position vis-a-vis its selected market. The most fundable companies have a unique market position and space, limited competition and strong sustainable competitive advantage.
  • Return on Investment - The investor will assess the venture's overall capital requirements and its ability to raise the necessary capital to fund its business plan and produce attractive returns to its investors via an IPO or merger. VC's enter into an investment transaction with the expectation that the investment in the venture will produce at least a 15x return.  The investor is also looking at a 3 to 5 year window for the liquidation event to occur. Most VC funds have a 7 to 10 year life before the portfolio must be fully invested and liquidated.


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