How to Judge a Startup

Published by MBA Skool Team, Published on July 28, 2015

Venture capital investment refers to the capital invested with into “risky” ventures to get a really high rate of returns. Capital is invested with into equities instead of loans to urge a decent rate of come back. The capital is provided to corporations within the varied stages of development and capital investment criteria square measure the methodologies followed by venture capitalists to pick acceptable ventures for investment.

Venture capital investment criteria isn't simply meant for tiny Associate in Nursing midsized businesses however it are often an investment into a project of an outsized business, or into a start-up company going to grow considerably. The capital investment criteria square measure supported the potential of the corporate to grow quick inside a restricted period of time and resources. The capital investment criteria outline the set of rules for investment in ventures to urge a high growth potential. The ventures which might give nice returns and also the ventures wherever the capitalist can have a undefeated “exit “ inside the specified period of time of investment varied from 3 to seven years is taken into account to be a perfect capital investment possibility. The start-up company that is predicated on innovative structure and a neat business model supported by a powerful management team attracts venture capitalists. The venture capitalists guarantee stocks follow the desired venture capital investment criteria to create mature investment in stocks to urge high returns.


Venture capitalists ought to follow the number of the essential capital investment criteria before creating any investment. The essential capital investment criteria square measure never pay with pay off” Associate in Nursingd “keep an exit arrange.” The capitalists ought tone pay with pay off and continually keep cash for private wants before defrayment on venture capital as a result of the failure rate in venture investment are often over five hundredth. In some stocks it will over ninetieth and if the venture fails, the complete funding is written off.

The capitalists pay cash to lift extra money and also the venture capital investment criteria facilitate them to create the proper choices. Some important capital investment criteria square measure as follows:

Additional Risk additional Returns

One of the most - capital investment criteria is “more risk offers additional returns.” Investment in risky ventures will get higher returns if the ventures square measure selected rigorously. The capitalist ought to recognize that stage of development the investment is required. it'll give a basic plan of the chance issue concerned and period of time of investment. There square measure completely different choices to create venture cash – initial offering, and Merger and Acquisition. The initial public giving or initial offering of an outsized company is most engaging of capital investments as a result of it comes with an occasional risk.

Company’s Profile

The capital investment criteria square measure principally supported the company’s profile. The corporate ought to be a quick growing company that contains a immense market presence and also the company ought to have plethoric holding to be ready to place barrier to its competitor’s growth. the corporate ought to be massive or supposed enough to grow quick. The corporate ought to be into a promising business field.

Company’s Development Stage

Venture capital investment criteria square measure designed to understand the stage of growth of the corporate and also the risk concerned. Generally, capital investment is required for four completely different stages of the company’s development - plan generation, start up, build up and exit. The capital are often for obtaining the “seed money” for introducing a replacement plan within the market. Since the risks concerned in new venture is high, the profits are high in new ventures. It are often for set out of an organization, or the corporate might have funds for promoting and development. Some corporations need capital for 1stspherical – early sales and producing, and a few corporations might have capital. The corporate might need cash for growth or for going public.

The business model

Venture capital investment criteria square measure concerning secure and high returns, and also the business model of the corporate allows it to grow quick. an organization fulfills the capital investment criteria if the merchandise sold by the corporate have a high market demand. the corporate ought to be ready to deliver merchandise to create customers repeat customers. the corporate ought to be ready to generate additional revenues with restricted resources. The business model ought to ful fill the capital investment criteria. It ought to have the potential to draw in customers and keep sooner than competitors.

Management team

A strong management team is required for an organization to sustain for long. If an organization isn't supported by a powerful management, it'll not be ready to deliver its plans and also the company might not perform well, therefore, a decent management team is one amongst the foremost necessary capital investment criteria. There square measure several corporations that fail to deliver the expected results as a result of there square measure clashes inside the highest management. The leading management of the corporate ought to be robust, skilled and knowledgeable at its job. The management team ought to have proficient, realistic, honest and seasoned cluster of individuals WHO have the aptitude to show plans into reality. the corporate ought to have folks to be ready to anticipate the issues and stop the corporate from dangers. each the highest management and also the promoting groups of an organization ought to be robust to stay it going.

Company’s Valuation

The market valuation of company in term of investments and equity ought to be engaging as a result of a decent valuation reduces the risks concerned within the investment.

This article has been authored by Lokesh Soni from SIMSR

Views expressed in the article are personal. The articles are for educational & academic purpose only, and have been uploaded by the MBA Skool Team.

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