Venture
capital is all about placing your faith in an entrepreneur with a strong
business plan, and a great idea. Investors place their money and support behind
something new, and different, hoping that it becomes the next big thing, or
that at least builds to the point of profitability.
Unfortunately,
a capitalist can get caught up in the excitement or emotion behind a business
venture, and end up placing their money in a concept that will never get off
the ground. In a buyer-beware environment, it is essential that every investor
understand the truth behind venture capitalist pitches, and throw their funding
and support behind something that is more likely to thrive.
1) The Story
Every
pitch contains a personal story of investment. This is the part of the pitch
where investors find out exactly what the product is, and what successes the
entrepreneur has had in marketing up to that point. It is the section of the
pitch designed to get capitalists excited and onboard with the venture.
Unfortunately, the story can put the investor at risk. It is essential that the
investor try to stay detached from the story, and remain emotionally neutral.
Getting emotionally involved in the entrepreneur's story can lead to rash,
emotion-based decision making, rather than a fact-based investment. Draw
important facts from the story, but ignore any emotional pleas. If the story
proves to be all emotion, and no fact, dismiss the investment.
2) Company Positioning
The
pitch will try to position the company within your known holdings. Pay
attention to any misrepresentation that occurs during the positioning portion
of the pitch. A good investment does not have to align with an investor's other
investments, if there is a sound business plan in place. If the entrepreneur
seems to go out on a limb, or skew their business plan to make it fit more completely
with your current portfolio, then they are not giving you an honest view of the
company. Ignore any element of the pitch that specifically targets how this
project fits in with your other venture capital investments. Instead, try to
view the investment as a stand alone proposition, regardless of your other
holdings. It should be strong enough to stand alone if it is a sound
investment.
3) Overlooking Less Obvious Investments
The
final element in the pitch is designed to convince investors that this product,
and business plan, is far superior to its competitors. It works to make this
venture look like the obvious choice. Take the time to look or less obvious
choice. Many venture capitalists have missed out on a fortune because they took
the larger, more obvious investment opportunity, and let what looked like a
small-time entrepreneurial venture get away. Truly analyze what makes each
project unique. Look for what qualities set a product or service apart from its
competitors, and go with the pitch that offers the most unique and well thought
out plan, regardless of size, or salesmanship.
Kevin
Aldrige is a business consultant. His articles have been posted on a number of
business and finance blogs. Click to visit CSS Partners for capital growth info.