Today I’ll continue with my series on the Entrepreneur’s Guide To Venture Capital.

14 Things VCs Look For

3) Experienced Management Team

One of the biggest problems that most entrepreneurial companies face is a lack of solid management in all areas of the company. The ideal company would have someone on the team who excels at sales, someone who has a strong financial background, someone who has built a statup before, someone with extensive industry contacts, and someone who can build and further develop your product.

Unfortunately this “dream team” rarely exists. Chances are you’re very good at some things but very weak at others. VCs are used to having companies come in that are not perfect but the closer you are to the ideal business and the fewer holes they have to fill to help you out, the more likely they will say yes to funding you. Remember, they’re sitting across the table sizing you up and wondering “Can this guy manage $2 million if I give it to him?”

4) ROI and Exit

Venture capitalists don’t usually expect you to pay them back in the first year – but they want to get paid a lot for helping you. They typically look for an average of 30-40% return per year by the time they cash out. Can your business deliver those kinds of returns? Are you in an industry that is growing hand over fist and attaining 30-40% average ROI is achievable? If not, you could have a great business but you’re just not a candidate for venture capital money.

VCs also don’t want to stay with your business for too long. They want to be out three to five years after buying into it. Is there a quick exit for you? The most common option is a strategic buyout from a related company so don’t be surprised if in your meetings the VCs ask you who might buy you in three to five years. The other exit options are to go public or to have a management buyout but the buyouts are pretty rare and with the way markets are going today, don’t expect many startups to go public anytime soon. Do your research so you can confidently walk in and know who you’re a potential acquisition target for. A profitable exit is 50% of the decision whether to invest in the first place or not.

5) Have Related Contacts

Once a VC invests into your business they obviously want to see it succeed and will think about who they know who can potentially lead to increased sales for your company. It could be a new possible client, a partnership relationship, a media contact, etc. When you’re making your pitch to the venture capitalists they are immediately thinking if they know anybody who would either buy what you’re selling or if there is a potential partnership angle with any of their contacts. The more related connections they have the more luck you’ll have at landing the deal.

If they don’t know anybody in your industry then they probably won’t invest and you shouldn’t take their money even if they did want to give it to you because you want someone who is going to give you more than just funds.