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However you got there, if you have managed to peak the interest of a Venture Capital Firm, there will now be a process of selection versus elimination. They are going to put you and your company through an ordeal to see if your deal passes the “tests” and is deemed worthy of an investment. Below is a summary of that process:

1. The Selected Company Investment Review

The selected company review is normally held over the phone with an analyst for the Venture Capital Firm. It is after the Venture Capital Firm has determined an initial interest in your company. The goal of this review is to quickly see if your company aligns with the Venture Capital Firm’s investment strategies and to test to see if you have the strength to proceed to the next step.

This review is of your company’s products or services, industry, management, financials, use of proceeds, capital structure, other investors, and market viability. Your company will be evaluated in terms of sustainable and established revenues, your potential revenues of $25 millionĀ with 3 years, $50 million or more in 5 years, a definable exit strategy, and a capital need of $500,000 to $5 million. These will be tested against your company’s management strengths, attractiveness of services, and the value of proposition of your investment (what is the potential for the investment return).

In order to proceed to the next step your company will have to show strong potential and pass the “initial review test”. This test is not the last test your company will have to pass and mostly serves as a go or no go tool for the Venture Capital Firm to determine if you merit further research and investigation.

 

Investment Review Test – Area Tested
Scoring Range
Management ability, past successes, and broad experience
0 – 3
Product or service uniqueness and attractiveness
0 – 2
Size and growth rate of industry and competition
0 – 2
Investment value proposition of Company
0 – 2
Is the market strategy clearly defined? (Y/N)
0 – 1
Are financials audited or ready for audit? (Y/N)
0 – 1
Is the capital structure clean and well conceived? (Y/N)
0 – 1
Are the margins (gross and net) in line with VC goals? (Y/N)
0 – 1
What is the status of the current balance sheet? (+/-)
0 – 1
Is current revenue above $1 million? (Y/N)
0 – 1
Is potential revenue growth above $100 million? (Y/N)
0 – 1
Are capital needs between $500,000 and $5 million? (Y/N)
0 – 1
Is there a clear and viable exit strategy with 5 years? (Y/N)
0 – 1
Is the use of proceeds clearly defined and supported? (Y/N)
0 – 1
Was management’s presentation impressive? (Y/N)
0 – 1
If your company does not score a minimum of 10 on this test you will normally receive a letter that may or may not explain why you were rejected. Sometimes the Venture Capital Firm will see a potential for future investment and that your company needs time to grow or establish the opportunity. They may send you a “not at this time” letter with further instructions about their investment criteria and what milestones you need to reach before resubmitting your request. This is rare, but it does happen.

 

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