What do investors look at initially when deciding which proposal or plan to investigate more thoroughly? The following six critical components are used by most VC’s during the initial look at a prospective portfolio company:

1) The Numbers Should Be Properly Presented

- An investor cannot proceed without accurate figures on a company’s past performance.
- If an entrepreneur cannot produce accurate financial projections, he should hire an accountant to prepare them.
- The entrepreneur must provide accurate and detailed projections for at least five years.
- Investors do not deal with entrepreneurs who do not understand and cannot explain the financial projections for their company.

2) The Deal Must Make Lots of Money

- This does not need to be elaborated on.

3) The Acid Test Of A Deal Is Management

Honesty and Integrity. Entrepreneurs should almost be honest to a fault. The truth will eventually be found out and thus the immediate relief of “slipping one by” an investor is quickly compounded by a bad reputation.

Experience. Most VC’s wish to back entrepreneurs who have extensive experience in the industry in which the business is operating.

Achievement. Solid achievements in an entrepreneur’s background are a big plus for attracting investors.

High Energy. Most investors look for a management team with high energy. An entrepreneur must be in good health and of sound mind. Good management will not only possess the strength and endurance to work long hours – they will also actually put in those ling hours to insure success. As Edison said – one percent inspiration, ninety-nine percent perspiration.

4) The Situation Should Be Unique

Why is your situation special? If a small business is to survive, it must have something unique and special such as a patent, a proprietary process, a long lead time on the competition, etc. On the other hand, most VC’s have an aversion to products or ideas which are too unique. VC’s do not wish to wait 20-25 years for a truly revolutionary idea to catch on.

5) The Proposed Venture Should Be Oriented Toward The Market

Good entrepreneurs do not introduce a product or service because it is nifty. They introduce it because their analysis of the marketplace shows that there is a demand and it will sell. This applies even more so for investors. Good entrepreneurs start not with a product idea – but rather with a vision of what the marketplace needs, wants, and will buy.

6) The Deal Must Have An Exit

This refers to the way the investor gets his money back. All VC’s look at cash flow and how and when the cash will flow back to the VC. There are really only three overall exits strategies:

- Go public
- A business or other investor group purchases the entire business
- The business buys out the VC by refinancing the company out of cash flow.

Every investor wants to be certain there is a liquidity event on the horizon before they get into an investment. Have you planned for an exit strategy?