Eden Strategy Institute featured in TODAY paper

August 30, 2012 – Originally appeared in the Business Adviser column of TODAY Paper

We are a three-year old tech start-up looking to grow our business. What do venture capitalists look for when investing in companies and what do they expect in return?

It always helps to get a personal referral to a venture capitalist (VC) – from an advisory board member, professor or client – rather than make a cold call.

For your first meeting, prepare a 10-slide pitch deck on your team, business idea, product or service description, key revenue models, competitive advantage, funding requirements and return on investment. Standby appendices with market research, financials, milestones, exit plans, legal issues and risk analysis.

You will be able to build an attractive company valuation if you can show rapid profit growth in your past three years. In the absence of that, you should have testimonials from prospective customers stating their willingness to pay for your product or service. At the minimum, you should be able to demonstrate that you have a potentially scalable business.

Most VCs are looking for at least five to 10 times return on capital upon exit. Early stage financing can range from S$500,000 to S$10 million for a 20- to 40-per-cent stake. Selling your equity thus has a real cost, and you would benefit from ensuring the VCs you work with bring contacts and operating knowledge.

Calvin Chu Yee Ming, Partner
Eden Strategy Institute