Raising venture capital
08 november 2018
The Belgian electrical bike producer “Cowboy” recently raised EUR 10m in Series A funding lead by the venture capital fund “Tiger Global Management”. What are the elements venture capital funds generally consider before investing?
An article recently appeared in the press concerning the Belgian start-up “Cowboy”, a producer of electrical city bikes, which raised EUR 10m in Series A funding with the aim of expanding internationally. Leading this round of financing is the American venture capital firm “Tiger Global Management”. This raises the question, what do venture capital firms generally look for before investing?
First of all, venture capital funds are investment funds that manage investor money and invest equity stakes into start-ups or small to medium sized enterprises with strong potential for growth.
There are several factors venture capital firms consider with the most important being the target firm’s management. Venture capitalists invest in a team’s ability to execute the business plan which was set forth. They generally look for managers which have a proven track record of building businesses and generating returns for investors.
A second factor to consider is the size of the potential market. Since venture capitalists most of the time make high risk investments in start-ups, the potential upside also has to be there for the risk-reward ratio to remain acceptable. If off the bat the target market is already saturated or small, the potential for rewards or return on investment is limited. It can thus make sense to include a market size analysis when pitching to a venture capital fund.
It is important to address the risk-reward ratio when attempting to raise money from venture capital firms and management have to convince them of their passion and capabilities to execute.