This website uses cookies to ensure you have the best experience. Learn more

How Venture Capitalists Evaluate Potential Venture Opportunities

1784 words - 8 pages

MSc Entrepreneurship and Innovation

Course:
Entrepreneurship in Science and Technology

Case study:
How Venture Capitalists Evaluate Potential Venture Opportunities

Student: Angeliki Papoutsi (10604707)

Lecturer: Dr. T. Vining

17. 04. 2014


1. Summary of the case and issues that were raised

The case study is about an interview, conducted to four venture capitalists from four of the most prominent VC Silicon Valley firms, Kleiner Perkins Caufield & Byers (KPCB), Menlo Ventures, Trinity Ventures and Alta Partners. These firms invest both in seed as well as in later-stage companies, which operate mostly in the information technology sector. However, each VC has developed ...view middle of the document...

(1986) and Vinig, T., & De Haan, M. (2002) .
With reference to these articles the following list with the most important categories and sub-categories of criteria is composed. The criteria are presented in the list with an attempt of a descending order, according to the importance of each category of criteria and sub-criteria (per category) for the decision-making as presented in the two articles but taking also into account my personal view on the subject.

1) The entrepreneur (personality and experience)
a) Capable of constant intense effort
b) Exhibited leadership ability in the past
c) Thoroughly familiar with the market
d) Has a track record relevant to venture
2) Market characteristics
a) The target market is significantly growing
b) The venture will create a new market
c) The venture will stimulate an existing market
d) There is little threat of competition during the first years (1-3 years)
3) Characteristics of product/ service
a) It is proprietary or can be protected in other ways
b) It enjoys demonstrated market acceptance
c) It is innovative
d) It has a global potential
e) It is on the development stage, to the point of a functioning prototype
4) Financial considerations
a) The investment that can be easily made liquid (e.g., IPO & M&A)
b) Return equal to at least 10 times the investment within 5-10 years
c) Return equal to at least 10 times my investment within at least 5 years

b. Based on your list and the information in the case develop a list of criteria that can be used to evaluate new venture opportunity.
Based on the criteria that are mentioned as most important from all the interviewees in the case the entrepreneurs personality and experience seems less important than the market size and growth rate. What the VC’s care about is for the entrepreneur to be flexible in changing the team members and accepting not being persistent on having a CEO position later on in the company. Also M&A’s don’t seem appealing despite the fact they are considered as logical due to the way the market works at the moment. What the VC’s always prefer is companies that are can be sustainable on their own and can be turned into substantial IPO-able companies. The financials and business model are taken into account mostly as a test of proof that the teams thinking is in the correct direction and can implement well. More factors are taken into account (eg. location, right timing, good understanding of the business model, direct sales etc.) than the ones that were presented in the previously composed list and from the information that are provided the high importance of already presented criteria seems to change.
Taking into account the information in the case and the initially composed list, a new list of criteria with a descending order is attempted here.

1) Market characteristics
a) The market size is big, more than $500 million and up to $1 billion
b) The market is significantly growing
c) The customer has a an important pain point and...

Find Another Essay On How Venture Capitalists Evaluate Potential Venture Opportunities

Venture Capital Financing Essay

2612 words - 10 pages . By being strict and fully assessing the potential investment, the capitalists are able to make better investments as well as improve their returns. There are many questions that should be asked when researching the potential investment. First, it is best to invest in a company that has a source close to the venture capitalists, someone that is well known and trusted. Next, they want to see the business plan in a clear and concise manner. VC’s

Venture Capitalism in Eastern Europe Essay

2334 words - 9 pages rejected. Being in a constant contact with the technological innovation in the sectors in which they operate, the venture capitalists have assessments methods of investment opportunities with potential in obtaining of high rates of return, provide support by monitoring and their active role in the development strategy of firms in which they invest, in research activities, product development and commercialisation. Frequently, such investment

Venture Capitalism

3300 words - 13 pages What Is Venture Capital?Venture capital is money provided by professionals who invest alongside management in young, rapidly growing companies that have the potential to develop into significant economic contributors. Venture capital is an important source of equity for start-up companies.Professionally managed venture capital firms generally are private partnerships or closely-held corporations funded by private and public pension funds

Financial Contacting with Optimistic Entrepreneurs

1691 words - 7 pages financial contracting between venture capitalists and optimistic entrepreneur in light of how the interests of each party are catered for in the venture. I have learnt that relational contracting has an important economic function in determining the success of a venture that involves venture capitalists and optimistic entrepreneur. While each party has different roles and responsibilities, they play a crucial role in determining the success and

Finacial Management Investment Appraisal and Finance of "New Printer" Project

2146 words - 9 pages funds."(Brayshaw, Samuels and Wilkes, 1995) Usually, the venture capital company will appoint a representative in the broad of directors so as to monitor the investment.Wheybridge's new product has a great market potential. It might give high return to the shareholders. This is a most attraction for the venture capitalists that are usually looking for an average return of 35% per annum on their investment. (Brayshaw, Samuels and Wilkes, 1995

Aberlyn case solution

1818 words - 7 pages period had no access to funding, apart from the lack of exploitation of venture capitalists in some line of credit available to these companies. Lastly, biotechnology was very capital intensive. The nature of the equipment used by biotechnology companies were relatively expensive and standardized, which made it a natural target venture leasing for arrangements.Aberlyn through of a technically qualified team was able to evaluate the technology, it

Aberlyn Capital Case Solution

1818 words - 7 pages period had no access to funding, apart from the lack of exploitation of venture capitalists in some line of credit available to these companies. Lastly, biotechnology was very capital intensive. The nature of the equipment used by biotechnology companies were relatively expensive and standardized, which made it a natural target venture leasing for arrangements.Aberlyn through of a technically qualified team was able to evaluate the technology, it

business review

1445 words - 6 pages business plan for a non-profit might discuss the fit between the business plan and the organization's mission.�Banks�are quite concerned about defaults, so a business plan for a�bank loan�will build a convincing case for the organization's ability to repay the loan.�Venture capitalists�are primarily concerned about initial investment, feasibility, and exit valuation. A business plan for a project requiringequity financing�will need to explain

Importance of a Business plan and Issues with Start-up

1167 words - 5 pages friends, relatives, employees, customers, or industry colleagues. The most common source of professional equity funding comes from venture capitalists. There are many sources for debt financing: banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. Family members, friends, and previous acquaintances are all potential sources. For many small businesses, even a loan from the

Company Investment Problems

2159 words - 9 pages late investments give them the opportunity to do so. “In competitive industries, a large financial war chest can not only speed the market penetration of a firm but also deter other companies from competing directly with it” (Overview of the VC Fundraising Process). Venture capitalists firms will invest if they feel that there is potential for the company to grow by double or more in profits. Using this approach to accelerate growth, entrepreneurs

New commercial landscaping technological processes and restructured

830 words - 3 pages New commercial landscaping technological processes and restructured as a Limited Liability Corporation. Joe's is being considered as a potential business investment, "Business Venture Capital". Buying an existing business can be an excellent way to become a business owner or to expand your present business. You can save time and effort of building a customer and supplier base. You may also avoid the trouble of locating equipment and

Similar Essays

Finance: New Venture Valuation By Venture Capitalists

2865 words - 11 pages ) - classified according to factors such as industry expertise, investment levels, deal structures, and desired return1. There is some overlap amongst the three types of private equity firms and their investment focuses and objectives.•Venture capital firms typically invest in young or new companies that exhibit the potential for very high growth within five years of receiving a venture capital infusion. Venture capitalists are interested in

Identification And Evaluation Of A Potential Business Venture

1208 words - 5 pages Entrepreneurship Exercise, and Mery and Crane’s (2013) New Venture Creation Model to provide a structured framework for idea generation for the venture. The ideal customer would be SME’s based in the Thames Valley, England, with 1 to 250 employees. This is the most attractive and logical client base for me to target as I already have work experience and pre-established relationships within this demographic. The company brand would be

‘Capital Punishment Is The Only Real Way To Deter Potential Criminals’ Discuss And Evaluate How Introducing Capital Punishment Fulfills The Aims Of Criminal Sanctions

1311 words - 6 pages Liam O'Shea'Capital punishment is the only real way to deter potential criminals' Discuss and evaluate how introducing capital punishment fulfils the aims of criminal sanctions.We read stories of ancient times where grand armies march and conquer vast lands, killing thousands of inhabitants and executing their leaders in front of the masses. These events to us seem medieval and brutal; however we only need to go a certain distance to find these

Business Finance And Marketing Essay

2129 words - 9 pages venture capitalist and entrepreneur will negotiate investment terms. According to Dotzler (2001), there are five major activities of a venture capitalist; Solicit or create investment opportunities, evaluate companies, negotiate the terms of investments, help build successful companies and liquidate investments. In addition, Dotzler also mentioned that there are four major areas that venture capitalists evaluate when determining whether to invest in