Question

Contact a venture capitalist and conduct an interview by asking the following. Such a relationship is most appropriate when large amounts of capital are required and expected growth and return rates are high. In what types of companies does the firm invest? What criteria does the firm use to decide whom to fund? What criteria does the firm use to decide on the funding amount? What is the typical background of a venture founder and management team? What financial information is commonly required by your VC firm? What controls or supports are used & given by the venture firm to help ensure the company's success? How long does the funding process take? What are the characteristics of successfully funded companies?

Answer 1

1. The Firm would like to invest in the small companies or startups which has come up with unique business idea and which is on its early stages in the market, which has a huge growth opportunity in terms of Returns on Investent.

2. The criteria to decide the funding depends on case to case, few of which are illustrated below :
a) That the start-up company should have a seed investment, that is the promoter of that company should have already invested in that business
b) the Management of the company have highly qualified staff on the board
c) the Management is also highly experienced in the sector in which the company operates
d) demand of the product in future, its market competitors, Margin, pay back period for investment, etc.

3. The criteria for funding amount also depends on various factors such as :
a) The absolute amount of returns the company could expect
b) for example where the company has to the market potential to earn $100 Billion a year, that has a hugh impact to decide the funding amount
c) in this case the Percentage of return may not to much relevant to funding decision, as the absolute amount may be much higher as compared to lower rate of margin

4. The venture founder and management team are the highly qualified finance professionals, whos has sound knowledge of business finance,
This also includes management experts, the CEO's or CFO's of reputed companies,
The investors with surplus funds, Etc

5. Financial information like - Earnings per share (EPS), Internal rate of return(IRR), Gross margin, Net margin, Tax Rates, Growth rate in sales, finance structure of the company, Legal status of the company, Assets, Liabilities, Current ratio, quick ratio, Assets to turnover ratio, Inventory turnover Ratio, payback period, Capital investment, working capital requirement, Detors turnover ratio, Credit rating from Investment bankers, Networth of the company, Debt to Equity ratio, Etc

6.  The operational support, Technical Knowhow, Sound business plans, strategies, marketing Pitching plans and advisories through highly qualified market researchers, even they can plot their staff on board of the company as an Independent Director,

7. The funding process time, again depends on many factors, this may range from few weeks to even a whole one year or two years

8. Characteristics of a successfully funded company as follows:
a) The have the viable market plans, strategies in place
b) They have the employee friendly work culture
c) they believe in Zero defect approach, Total quality Management
d) they have technologically skilled work force and updated with time
e) They have policies to consider customer feed back and work on it
f) they work hard, ability to deal with failures, accepting the fallbacks, Etc