Business Models and Planning - Essay Example

How Venture Capitalists Evaluate Potential Venture Opportunities How Venture Capitalists (VCs) Evaluate Potential Venture Opportunities An investor demands capital to start up a business or support the business for expansion. Often, most investors do not have sufficient funds to run their business ideas. Most small businesses are at high risk of failing during their early stages of inception because of inadequate funds. Venture Capitalists (VCs) are investors who would wish to provide capital to new businesses or support small companies that may want to expand but have few public funds.

Venture capitalists invest in companies because they want to earn a massive return on their investments if the companies are successful. Remarkably, VCs consider diverse factors before deciding to invest their funds in various business opportunities. There are three major factors the VCS would evaluate to ascertain the viability of the business opportunities. The factors include market size, management team and technology, as outlined by Roberts and Barley (2004). The first factor that VCs consider when investing in a new business is the management team.

Regarding the management team, the VC must evaluate the ability to adapt to prevailing marketing environment. In essence, it is the ability of the business to cope with the dynamicity and complexity of the business environment. VCS would consider whether to continue with the existing marketing team or employ more workforces. The management team should consist mostly of a focused team of entrepreneurs whose primary objective is the success of the business (Roberts & Barley, 2004). The second factor that VCs consider before venturing in the new business is the ‘market’.

The market is the strength of every business. Either the market is the physical location of the business or any other platform where the exchange of goods and services take place. The entrepreneur should access the market size and formulate viable marketing strategies in order to evaluate the accessibility and the possibility of expansion and developing the market niche. The penetration of the business’ products is a great factor in marketing that is the ability of the products to compete in new markets.

The third critical factor considered by VCs when investing in a new market is technology. Notably, technology is a current trend in the world of business. Most business operations, today, require technology to enhance the efficiency and productivity of the company. Technology facilitates speed and accuracy in the production process. The application of the technology in various departments would enable the company to limit the chances of potential losses while increasing profitability. The three major factors to consider before venturing into the new business are equally important.

However, the market factor is the most vital for VCs to consider. Every business strives to ensure profitability, an objective that essentially depends on the market. Other factors depend on the market of the business. There are two fundamental questions for VCs concerning investment evaluation. First, how can you ensure you conform to business ethics and values to outdo competitors in the market? Second, what can you do to realize a maximum return on investment (ROI) at a minimum cost in a highly competitive market?

Legal requirements are equally critical factors in the business venture. The legal requirements include knowing whether the business activity involved is lawful such as understanding the execution of the patent right. References Roberts, M. J., & Barley, L. (2004). How venture capitalists evaluate potential venture opportunities. Harvard Business Review vol. 9 (805-019).