Dollinger index

Securing Investors and Structuring the Deal 305

of product will make the BFC irrelevant, or whether someone else is around the corner

with ever more BFC.^11

An investor looks for the fatal flaw in an entrepreneur’s plan, perhaps an incon-

sistency that negates all other positives. The investor attempts to view the new venture

proposal as a business system and a set of interconnected parts. Parts that do not fit

together are a red flag for investors—perhaps even a deal breaker, a “can’t be negoti-

ated demand” that catches the investor’s eye and causes him or her to reject the pro-

posal.^12

Timmons sums up investor criteria in three broad strokes.^13 He says that the invest-

ment must be forgiving, rewarding, and enduring. A forgiving opportunity has some

FIGURE 8.1 Venture Capital Investment Decision Process

Resistance to

Environmental Threats

• Barriers to entry


• Obsolescence risk


• Downside risk


• Resistance to
  economic cycles

Managerial Capabilities

• Management skills


• Marketing skills


• Financial skills


• References

Product Differentiation

• Uniqueness


• Product life


• Profit margin


• Value added

Market Attractiveness

• Size of market


• Market need


• Market growth


• Access to market

Step 1

Evaluation

Step 3

Decision

Step 2 Risk Return

Assessment

Expected

return

Decision

to invest

Perceived

¾risk

¾

¾

¾

¾

¾

+, ++, -, -- ; symbols indicate the direction and magnitude of the parameters describing the relationships of

the variables.