How Venture Capitalists evaluate successful Information Technology Business Plans

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How Venture Capitalists evaluate successful Information Technology Business Plans

Background

When starting a business, huge financial investments are needed to be made; however, often entrepreneurs are not available with sufficient funds that are necessary for commencing the business (Berglund et al. 2007, Pp. 165-181). Capital is required for investing in assets, such as machinery, plant and equipment and paying wages to worker, that are essential for business operations and to enable corporations to generate revenues and achieve organizational goals. These organizations have several options to finance business operations. Entrepreneurs can invest their own savings to finance business (Bartzokas & Mani, 2004, Pp. 221-224). Another method is bootstrapping, where at initial level of businesses an insignificant amount of investment is made and later the profits that are generated are re-invested to achieve growth. They can also borrow loans from banks; however, banks assess the credibility of organizations to determine their ability to repay debt, interest cost will also have to be paid on these loans. The most effective and efficient approach is Venture Capital, through which corporations can get large amounts of money to for business start-ups and to achieve growth quickly (Bloomfield, 2005, Pp. 25). Various studies have been conducted for determining elements that are assessed by venture capitalists for making investments; however, yet researcher have neglected the need for evaluating the importance of marketing the product in the industry for attracting customers. Therefore, the researcher will focus on the need for having effective marketing plans to attract venture capitalists investment.

Although venture-capitalists provide funds to organizations, but these funds are made available to firms, after venture capitalists have thoroughly assessed business plans to ensure that organizations have the potential to earn massive returns on their investments so that they can be benefited (Udayan, 2000, Pp. 24). However, when these companies fail venture capitalists have to bear the losses, but they consider it is imperative to take associated risk with financing new and small companies that have greater management and team with innovation, which increases the likelihood of firms becoming successful. They look for companies that have efficient management and large potential market for its innovative products. The hinge of new venture is dependent on its ability to obtain venture capital funding. Venture capital has been paramount in the emergence of the information technology industry in United Kingdom. In the past it has been witnessed that venture capitalists considered new ventures to be homogeneous (Berglund et al. 2007, Pp. 165-181). However, the trend has changed today, where different ventures are assessed based on multiple factors. It is important for venture capitalists to evaluate business plan for determining the risk associated with the venture, generally two types of risks are examined by venture capitalists, which include business risk and agency risk. It has been observed that virtually every information technology venture has been dependent on venture capital funding (Garbade, 2011, Pp. 47-49).

Evaluating Business Plans

According to Udayan (2000), there is an increased need ...