¶ … Capital Case
What venture capitalists agree?
The venture capital industry is riddled with both mystery and intrigue. Often, many venture capitalists are captivating by markets and technologies completely original in regards to product offerings. However, by pursuing these risky endeavors, many newly formulated companies and technologies crumble shortly after inception. To mitigate these risks, venture capitalists formulate measures to reduce the risk associated with investing in start up projects. Because success often hinges of personal fortitude and experience, venture capital investment criteria often vary between organizations.
Within the case, many core concepts regarding venture capital funding remained constant. One of these concepts was proper timing. All venture capitalists agreed that timing is a critical function in regards to overall returns. The nature of venture capitalism is inherently risky. As a result, venture capitalists must be compensated in accordance with the underlying risk associated with the venture. Depending on the timing of the initial investment, returns can either be exceptional or mediocre at best. All the venture capitalists agreed that funding should begin at the emerging stages of the industry. By pinpointing the emerging stage of the industry, venture capital funds can be appropriately used to cultivate a brand and sales revenue.
Sales Revenue is meaningless without a substantial customer base however. All venture capitalist surveyed within the article agree that a strong customer base is essential to strong financial performance. Customers...
More importantly, repeat customers have been proven to be more profitable than newly acquired customers. Due to this fact, it is important for new venture firms to establish a strong customer base from inception until the initial public offering. First, by having an established customer base, a potential IPO becomes more likely and profitable with respect to potential investors. By having a strong history of sales, earnings growth, and customer growth, companies can continue to be profitable while demand for an IPO manifests itself. A perfect example of this is found with FACEBOOK. As of now Facebook is a private company with rumors of a potential IPO sometime within the next two years. Demand for shares of Facebook is high partly because of its substantial customer base and global presence. Without this following, the business model and overall profitability of Facebook would be significantly diminished. What wasn't mentioned explicitly within the article was the importance of identifying the correct customer segment. Identifying the correct customer segment is actually more important than building the overall customer base. This is because in order for a startup venture to survive, it must first sale its product to the correct customer. By not identifying the correct customer, the company may not be satisfying the needs of that potential segment properly. This could hinder over profitability by not correctly identifying a value proposition to the correct target market.
Finally, value proposition was universally important among venture capitalists surveyed. More specifically, satisfaction…
