Investing is almost always a risky affair – with chances of the investment not paying off. The same applies to a venture capital fund where investors run the risk of the startup not being successful. If a startup fails, investors lose their investment, of course, as well as the potential return on investment – the profit.
As an investor or venture capital firm, there are a lot of factors to look at and consider before expanding your venture capital portfolio.
What to Consider
Business Partners’ Personalities
A brand or company is basically an extension of the people behind the idea. As such, it is very important to consider their characters. They could have a million-dollar idea but with the wrong personnel, the idea might never materialize.
So, what do you look out for?
The ideal qualities are reliability, work ethic, integrity, and of course the potential for a long-term relationship. Your relationship does not end at the provision of early stage venture capital funds so you need to keep in mind it is a long-term relationship.
More often than not, venture capital investors are integrated into the management of the startup.
A team whose members all understand their roles and perform them with passion and gusto is the dream team. Before deciding to invest, ensure you feel absolutely confident in both the abilities and the character of the team you will be working with.
Capacity of Business Partners
This particular step goes further than just studying the character of business partners. To get the startup to excel, a team that is both qualified and capable is needed.
You need to make sure every team member is highly qualified and they have the ability to take the business to the level you want it to get to. There has to be a capable team with potential to grow and carry the business to higher levels of success.
Experience and excellent track records can give you a little extra confidence when picking a team to take you forward.
Great Idea
Every new startup starts as just an idea. Only viable ideas with potential to grow are able to secure early stage venture capital funds.
What qualifies as a great startup idea?
To begin with, look out for innovative and unique ideas – unique in the sense that the idea hasn’t been pitched to you several times before. It needs to be something new that no one has tried or succeeded at for that matter.
Communal Benefit
Startups come and go – sadly so. In fact, experts say the startup failure rate is somewhere between 80 and 90%. The ones that are lucky enough to succeed all have one thing in common: they all solve a problem.
As an investor, be on the lookout for startups that bring value to the community and humanity as a whole. Ask yourself, do they solve a large scale problem? Do they provide a benefit that plenty of people will desire to utilize?
If the answer to both questions is yes and the idea is viable to exponential growth, that’s probably a good addition to your venture capital portfolio.
Long-Term Sustainability
From an investor’s point of view, it has to be something that offers long-term benefits. The long-term sustainability makes it worthwhile.
Ideally, venture capital investors invest millions of dollars in venture capital funds with the potential return on investment being multiple times the initial investment. It may take a while to realize this and that is exactly why long-term sustainability is important.
It is for this very reason that venture capital investors heavily focus on the long-term sustainability of an idea before investing. If you have doubts about the shelf life of an idea, just don’t risk it.
