Entrepreneurs are challenged to find and convince serious investors to evaluate and actually finance their new ventures. There are common characteristics that attract venture capitalists (VCs) as well as other investors – whether family, friends, angels, or strategic investors. Designing your business model with these five key components will contribute to success in financing your new business.
First, there has to be a big market opportunity. The total market itself has to be substantial – well over US$1 billion or more depending on the sector, and there must be a large ‘available market’ for the company’s product or service. Of course, one also must convince potential investors you have a realistic go-to-market plan and scale up plan to access and play in the market.
Second, the offering, whether technology, product or service, has to be new, novel and competitive. The new or novel features, benefits and performance characteristics have to be at least several magnitudes of improvement over alternative available solutions. And these advantages have to be well protected in order to provide a sustainable leading competitive advantage over a significant period of time.
Like all competitive endeavors, a team of stars is a must. Individuals have to be outrageously excellent leaders in their field with relevant accomplishments to propel the venture forward and upward. More, the combination of talents of the team has to be significantly complementary and the cooperation among members has to be evident and robust.
Fourth, an extraordinary financial opportunity has to be clear. Projections must demonstrate top line revenue growth potential with attractive cost and profit structure that drive great cash flow generation. Most importantly these measures need to be rooted in specific go-to-market plan and scale-up plan that are convincing and defendable.
Finally, the investment opportunity must fit with investor’s criteria. Not only must target financial metrics be available – including meeting the hurdle rate for Return on Investment (ROI), but just as critical is the fit with the investor’s preference for certain sectors and geographic locations.
To conclude, entrepreneurs and leaders with a business design for a new venture that is composed of these five critical components are well positioned to attract investor interest in a viable business. It is your job to articulate these characteristics in a compelling manner in your business plan and in person to close the deal!
Best, Sylvester Di Diego
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