Venture Capital and Private Equity Primer

"In today's environment VCs are seeking proven managers who have already grown a company and shown their prowess. This makes it difficult for the entrepreneur with ideas but little experience to raise venture capital. VCs are looking at expansion and later stage deals with favor. In general they would rather back a more mature deal where they can exit in two to three years than a start-up with a more traditional funding cycle.15 The implications are that early stage deals are tough to get done, and this increases the need and demand for quality angel investors.

Lastly, VCs are seeking the efficient use and deployment of invested funds. This concept of capital efficiency is in the vein of returning to industry basics as seen in the early 1990s. Unlike the period during the Internet bubble, today VCs prefer to invest more traditional amounts in tranches that will cap the total investment in a company at $20 million to $30 million. This means that a company can foreseeably go from seed round through its final VC round using no more than $20 million to $30 million and be a viable ongoing business; obviously there are exceptions such as the biotechnology industry. VCs who invest in technology companies that create software are seeking offshore suppliers and partners to stretch their investment dollars."

Read much more in this article from VC Experts that provides a detailed overview and analysis of all aspects of the VC business, principally from the point of view of the entrepreneur seeking funding, but also including valuable information about how private equity funds are organized and function. Highly recommended.