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Early Stage Venture Capital: How to Obtain it
Conduct an Opportunity Assessment
Whenever an entrepreneur decides to start a business they do so with a compelling idea. These ideas usually come from a recognition of opportunity also referred as recognized need or addressable pain point in the marketplace for this compelling idea, whether it be a product or service.
Before launching into a full-on effort to get your idea on the ground by securing early stage venture capital, you must determine whether there is actually a REAL opportunity in the market for your idea.
Remember, although you may think that you have come up with a totally unique world-changing concept, chances are that with 6.8 billion people in world someone else has thought of your idea as well and may be working on taking it to the next level. This is not the end of the world.
What an investor wants to see is the potential for return on investment, normally many times their original investment. As an entrepreneur you want to prove to the investor that you have done your homework. Therefore, within the opportunity assessment you must show the investor that the market opportunity exists by stating who comprises the market and why these potential customers need your product or service: e.g. why would this customer find this product or service to be useful or valuable over other solutions.
Furthermore, the opportunity assessment must analyze all potential risks, e.g. competition. Kind in mind that very rarely does an entrepreneur generate an idea that does not see direct or indirect competition from other players. Competition almost always exists. By analyzing the competition, an entrepreneur can prove to the investor what is occurring in the market, where the opportunity to make money really exists, and how this product or service idea can outflank the competition.
Develop a Strong Business Plan
Venture capital investors commonly see the same ideas or derivatives of the same ideas and yet they still choose to invest money with certain people. Why, do you ask? Investors invest in more than just great ideas. A great idea is a start but venture capitalists invest in the management team, business model, market opportunity, technology, competitive advantages, substantiation with customers, and realistic financial projections. In simpler terms, venture capitalists invest in well thought out business plan, developed by a strong management team.
An example here is Google, which received a $250,000 seed investment from Jeff Bezos, the founder of Amazon. Google did not have a new product; it was in simple terms just a search engine, something that had been done over and over again by many others before it. As a result, if an investor like Bezos would have just assessed the company based the product, Google may have been out of luck.
As luck would have it though, Bezos invested in the people: Larry Page and Sergey Brin, two guys trying to start a search engine from their garage in Menlo Park, CA. As Bezos states, "they had a vision...it was a customer-focused point of view." Turns out their vision, quite possibly the purest business model that the world has ever seen, worked out quite well for both Google and Bezos. In 2004, Google prepared an initial public offering and now has enterprise value of $164 billion. Bezos, on the other hand, has a stock share position worth $280 million.
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