Raising Money

What Do Venture Capitalists Want?

John Bradley "JJ" Jackson

03 Mar 2009 • 1 min read

Venture Capital firms are out to make money---lots of money, if possible.

The first thing to know about VC firms is that they are investing other peoples’ money, rather than their own. The money comes from a variety of sources including insurance companies, banks, pension funds, university endowments, and corporate investment entities. The game is to out perform the stock market; risk comes with the investment but the goal is to not to lose the farm.

Thus, venture capital investments must meet these general criteria:

• The investment must serve a large, fast growing market. Niche markets are seldom big enough for a VC investment.

• VCs want to invest in companies in emerging markets rather than in mature markets. This is the domain of value added pricing and high profit margins.

• The company offering must have a clear competitive advantage. The offering must be truly unique and valued by the target customer.

• The competitive advantage must be sustainable. If the offering is easily copied or duplicated, it is not a fit for venture money.

• The management team must be top notch if not over qualified. Pedigrees count and only winners are hired. No second chances here.

• The offering must be scalable and repeatable. This favors products which can be built rather than labor intensive service businesses.

• The return on investment opportunity must be extraordinary—a 25 times return in 5-7 years is not an uncommon goal.