Finance - Venture capitalists

6 important questions on Finance - Venture capitalists

What are the 2 roles of venture capitalists?

  • Select the venture that have the best potential for succes
  • Help to develop ventures by providing management expertise and access to resources other than financial ones

What is staged financing which are sometimes offered by VCs, and where depends the financial stage on?

The provision of capital to entrepreneurs in multiple instalments, which depend on the venture reaching particular business targets

What are the 3 main reasons for rejecting proposals?

  1. Lack of intellectual property
  2. Lack of management team skills
  3. Insufficient size of the potential market
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What are the 3 most significant selection factors?

  1. Personal: founders' personality and experience are assessed
  2. Market: large, fast-growing, under-served, sense of urgency to fulfil the unmet needs
  3. Financial: entrepreneur and VC shoudl agree on the valuation rule

What is the valuation rule?

Valuation formula by which an investor assigns monetary value to  a new venture

Why is the valuation rule needed?

Entrepreneurs overestimate the value of their business and VCs are sceptical about sales

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