What venture capitalists look for in start-ups

Anyone who has a business idea needs capital in order to develop a functioning business model from it and to found a company. Business founders cannot always rely on the bootstrapping concept and raise their start-up with their own financial resources.

External capital from investors in the form of venture capital or risk capital can then be a solution. Because risk capitalists, also known as venture capitalists, have made it their mission to support business ideas for young start-ups with capital, so that small start-ups can grow into billion-euro companies.

In order to find a “worthy” candidate for financing , financiers have certain criteria that they look at young companies. It is therefore important for business founders to know exactly which criteria these are and how founders can become attractive for venture capitalists.

Interesting facts about venture capital and venture capitalists

The allocation of venture capital is a win-win situation for entrepreneurs and investors. Because while start-ups benefit from a cash injection for their business start-up , venture capitalists receive shares in the company for the contribution of capital and become co-partners.

When it comes to the nature of the respective companies for possible investment, these are predominantly new start-ups and companies that already show a high level of innovation and potential , but in contrast can offer little security. The reason for this is that newly founded companies in the early growth phase often generate little or no turnover and have a high capital requirement.

Because of the increased risk of failure during the start-up phase, the capital is referred to as venture capital or venture capital. Therefore, venture capitalists are choosy when it comes to choosing a suitable start-up for an investment. After all, they don’t want to take any serious risks when investing in a start-up.

Which factors venture capitalists pay particular attention to in start-ups

Before venture capitalists invest in a start-up, these business start-ups are carefully examined. The following points are particularly high on the list:

  • business idea and product value
  • management team
  • Company profile or risk assessment
  • market opportunities

business idea and product value

Innovative products and services that can demonstrate a long-term competitive advantage are particularly attractive to venture capitalists. Therefore, innovative business ideas that offer a solution to an important problem and are of great benefit to customers are primarily eligible for financing .

The business model should be strongly customer-oriented and respond to customer needs. The business idea must also gain a competitive advantage on the market. Otherwise, it will be difficult to assert yourself against the competition and make profits with this one. Venture capitalists are looking for products or services that have a high market volume of at least one billion euros.

management team

A brilliant business idea is an important criterion for venture capitalists investing in a business start-up. But even more important than this is excellent management.

Venture capitalists primarily invest in a management team and its ability to implement the specifications in the business plan. Because often business founders have an ingenious business idea, but fail to market it well. A well-functioning and diverse management team is therefore important. The individual team members should combine different competencies in the management team.

For start-ups looking for an investor, it is therefore advisable to provide them with a list of qualified team members for all business areas. In addition, they should be willing to hire experienced external managers if necessary.

Company profile or risk assessment

Venture capitalists want to know in which start-up they are investing. This also includes information about the start-up’s successes that have already been recorded, but also information about the goals that have been set. Investors want to know as much as possible about the company they are investing in, after all they want to know about any risks. The investor therefore checks very carefully whether the business idea promises an appropriate return in relation to the risk involved. For this purpose, venture capitalists clarify the following questions in particular:

  • Can legal problems arise?
  • Is it possible to get off early? And before that exit, are there any chances of yield?

These are just some of the questions with which investors try to reduce their risks in the context of financing.

market valuation

Venture capitalists also examine the respective market on which the business idea appears. In particular, this should be growing and offer many opportunities for companies.

Start-ups that aim for the largest possible market with their idea have a clear advantage here. Therefore, start-ups should keep an eye on the development of the market, its stability and possible problems such as a “summer slump” and holiday periods.

Create a professional business plan including a financial plan

All of the above points must be recorded in a detailed business plan. Because such a business plan, including a financial plan , serves as a key tool for venture capitalists to assess the business idea.

Business founders who need capital and are looking for investors for their start-up should therefore invest a lot of time in creating a business plan . So that nothing goes wrong here, it makes sense to take help in the form of business start -up advice. Because a consultant knows which points must be in a business plan or in a financial plan so that this venture capital provider appeals.