Good management, above all else, is likely to be the deciding factor for a venture capitalist looking to invest in a company.
That criterion is more important than any other at Telsoft Ventures Inc. (Telsoft), said Robert Talbot, Telsoft president.
“You have to get good management, seasoned management, people that have an open mind.”
This might mean acknowledging that somewhere along the growth and investment process of a company, “you will probably not be the person that can make the next step,” Talbot said.
Doron Opher at KPMG Corporate Finance in Toronto said solid management is paramount when it comes to winning over investors. In addition to the idea which is actually being promoted, Opher said, “the three things you need to know are management, management, management, because in the end you’re investing in the managers.”
Opher’s advice: “Be as immodest as you can. You want to show off with everything that you can because there are a lot of good people out there.”
According to Talbot, another important criterion is market potential — the solution the company may bring to the market. “I say solutions because it needs to be a solution, not just a product. If the product is a solution to a problem, then it’s probably a good product.
“There is very nice technology out there, but people may not see a need or the value to the product, that’s the type of thing we want (companies) to look at.”
Once the initial investment has been made, Talbot said his company will work with the entrepreneur for a period of roughly five years to help the company mature. This means providing contacts, industry expertise and the ability to attract other companies to the business.
According to Opher, there are several advantages to working with a venture capitalist. First and foremost, he said, “that is where the money is.” The simple fact is venture capital firms have the money which most entrepreneurs do not.
In addition, Opher continued, an entrepreneur can gain valuable insight into his or her business plan in the process of seeking such an investment.
“A screening by the venture capitalist is a good reality check for many entrepreneurs,” he said. “You may think you’ve discovered the secret to eternal youth and you may have a business plan, but the venture capitalists see tons of business plans in the industry they know…they would put a very sound business judgement on top of what you the entrepreneur believes.”
Finally, once the investment has been made “if things go OK, they provide good support because it’s in their best interest,” Opher said.
On the down side, “they own a significant portion of your business…and they have influence. You have to give them a piece of the upside and you may not always necessarily agree on the next steps.”