Capital Case What Venture Capitalists Agree? The

¶ … 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 drive overall profitability. 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 of an unmet need is of primary importance.

In order to generate sales revenue, establish a customer base, and to become profitable, the product must first satisfy a need. Without satisfying an unmet need, the product is essentially a "Me too" product that is easily duplicated. Even worse for a start up firm, without the correct value proposition, many companies will simply lower price in an effort to eliminate the company. 2. What disagree? Many of the venture capitalists disagree in regards to the importance of management to the overall success of the business.

Sonja Hoel, places more emphasis on the market as oppose to the management team. His belief is that, if the market is substantial, even mediocre management can be successful. This is in direct contrast to Fred Wang, who places much emphasis on the CEO component of management. In fact, Wang evaluates the CEO position very thoroughly. He believes in keeping the CEO from inception of the project until the IPO because successful companies maintain the CEO within that position for the duration of the business life cycle.

Likewise, Russell Siegleman disagrees with Hoels emphasis on management. Siegleman too places much emphasis on effective management. This is mainly because effective management can steer the company in the right direction in the event that the problems arise. With their experience management can better determine better forecasts that can potentially place the company in a more profitable position in the future. 3. Are venture capitalists focused "strategic" choices "tactical" choices? Explain. In terms of venture capitalist focus, I believe that they are a combination of both strategic and tactical.

Both concepts are needed for successful investing, however the weight placed.