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How Venture Capitalists Evaluate Potential Venture Opportun
Transcript of How Venture Capitalists Evaluate Potential Venture Opportun
4 venture capitalists shared frameworks in evaluating potential venture opportunities
Evaluate Business Model
Evaluating Business Model
Role of Risk
Evaluate Potential Opportunities
Process of Funding Decision
Education and Background
High educated with degrees of MS or MBA in prestigious busiess schools
Worked as analysts, consultants... Familiar with software and internet industries
- Evaluate potential opportunies
- Evaluate business models
- Conduct due diligence
- Make funding decisions
- Perform financial analysis
- Exit route
Systematic Emerging Market Selection
Emerging industries - enough potential ???
Same industry, specific audience
Grow the Business
Grow to a large scale to be profitable
For PEOPLE rather than its business potential
- Consult analysts, customers and other experts
- Hire good people
- Analyze companies we didn't invest in
Internal agreement -> action plan -> track
Based on Jim Harvey's speech structures
- Hardware: BOM and Selling price
Software: cost to sell
- Market (large, growing) is important
- Rule of Thumb
IT - 200k-300k big market
Entrepreneur & Team
If ..., would ...? and $?
Customer pain? How effctive delivering the message? - R.S.
Key for certain industries
- idea, team, market,
consult entrepreneurs from previous investments
How they execute?
Friends with them?
Ask people who also work with
them before (reference check)
All about business angle, the model, and the momentum
Risk-to- Reward ratio
Return < 5 times investment
high risk - 10 times
Thank you !
Xin Ma and Wenjin (Ivy) Wang
Expense and Revenue Model
Expense model: identify all costs and expenses
$ to get CF breakeven?
Potential Exit Route
How to choose
Going public (IPO)
Systematic liquidation of assets
Outright sale (MBO)
Consider your future role in business
Evaluate your liquidity needs
Access market conditions
Think about future business potential
Not diversified, smaller population, competitive, not flexible
A good company can do well by itself.
A technologist drives the company!
patents no necessary
Prefer companies with some customers or sites ( eg: 18 -month window F.W.)
Avoid tranche investments
Revenue - Cost = Gross Profit
No direct sales force, prefer 3rd channel
Develop new products, meet customers needs
Produce free cash flow (Equity)
Using competitors numbers
Calculate average gross profit in the industry
Compare to the evaluating model
You are the investor!