Entrepreneurs need tools at their disposal to successfully commercialize high risk, high performance ventures. The window of opportunity for any venture is only open for a short period of time. Entrepreneurs who can successfully navigate the process of moving from concept to market in the shortest amount of time, with the fewest number of missteps and with an efficient use of resources are the ones most likely to succeed. The following tool kit provides entrepreneurs with a successful methodology to fulfill investor expectations and enable the venture to expeditiously accelerate commercialization.
Venture Capital Tools provides the startup venture with 6 assessments to assist them in getting a perspective on how an investor might view them as an entrepreneur, how their business plan will read to an investor, a business model risk profile, how their product might perform, where they are in the venture development process, and several methods for venture valuation.
The Entrepreneurial Readiness Survey, though unscientific, was developed over a 20 year period and 1000s of discussions with entrepreneurs and investors. The question of whether entrepreneurs are made or born will likely never be answered. Some individuals become entrepreneurs out of necessity, others from opportunity. Regardless of their motivation or circumstance, investors look for characteristics and attributes that reflect an absolute commitment and dedication to developing and managing a venture to commercial success.
This survey provides an individual with a method to determine:
Description: The purpose of the Entrepreneurial Readiness Survey is to assess responses compared to entrepreneurs in high-performance business ventures. The assessment evaluates the entrepreneur from 5 perspectives: 1) Credentials, 2) Capabilities, 3) Characteristics, 4) Commitment, and 5) Circumstances.
Purpose: This non-scientific tool is designed from an investor's perspective and is weighted according to the factors investors hold most important in evaluating entrepreneurial traits and characteristics. The purpose is to provide the entrepreneur with a snap shot of how they might be viewed from an investor's view point.
Scoring: To take the survey the user simply responds to each statement with the proper response. For example, the user would select "Strongly Agree" if the user strongly identifies with the statement. The user would answer "Disagree" or "Strongly Disagree" if the user does not identify with the statement, and would choose "Neutral" if the user does not identify with the statement one way or another.
Score: The assessment provides a percentage score in each of the 5 categories and an overall percentage score. The overall score reflects your Entrepreneurial Readiness Level. The questions are weighted based upon responses investors believe most important. A score of 90% indicates you compare well with other entrepreneurs operating high performance, venture funding-backed enterprises. A score of 80% or higher indicates you have the skills, know-how and characteristics to be a successful entrepreneur in a self-financed, high-performance business. A score of 70% reflects a good foundation for a life-style business, while a score below 70% suggests more work experience, training, or personal development are indicated to meet the rigorous requirements of entrepreneurship.
Venture development is a unique process that is reinvented with each new startup. The Venture Readiness Survey enables the entrepreneur to add order to what is otherwise a chaotic process driven by unanticipated circumstances, resource shortages, and unexpected delays.
At any given time in the process it is constructive to know:
Description: The Venture Readiness Survey is a self-assessment tool to analyze the progress an entrepreneur has made in the commercialization or business development process. Originally developed to transfer technologies from NASA and Federal Laboratories, this and the accompanying tools are widely used by state and local organizations focused on technology-based economic development and new and existing companies in commercializing technology. The Venture Readiness Survey is based upon a Commercialization Model used nationally and internationally to assist 1000s of new startup and existing companies commercializing new products. The survey generates an overall Venture Readiness Level (VRL) consisting of the Technical Readiness Level (TRL), Market Readiness Level (MRL), and Business Readiness Level (BRL) of the commercialization process. The Venture Readiness Level will assist entrepreneurs and existing companies in developing their commercialization strategies. A complete narrative description of the commercialization process accompanies this tool.
Purpose: The Venture Readiness Survey 1) identifies the entrepreneur's progress in the commercialization process; 2) assists in developing a go-forward commercialization strategy; 3) identifies appropriate sources of financial capital; and 4) provides sources of business resources.
Scoring: The Venture Readiness Survey tool consists of a technical, marketing, and business survey associated with each step. Begin by clicking on "Step 1" followed by "Step 2-18." Answer the survey questions associated with each step. Stop on any step where all the answers are "No". The survey will generate scores for the Technical Readiness Level, Market Readiness Level, Business Readiness Level and overall Venture Readiness Level. The following Venture Readiness Levels correspond with the following investor stages:
Investment is all about risk and reward; the greater the risk the greater the reward. Investors are typically high net worth individuals who have an appetite for risk and are willing to invest in qualified deals that have the potential for exceptional rates of return. However, investors are not gamblers, and they use a great degree of due diligence in analyzing a deal to determine if it falls within their tolerance for risk.
Thus, it is advisable for an entrepreneur to know:
Description: The Risk Readiness Survey analyzes five key risk factors associated with the investor's investment decision criteria. The five risk areas are: execution, product, market, management and finance. The survey lists 5 key investor questions in each of the 5 key risk areas for a total of 25 key investor questions. The questions and the categories are weighted based upon investor importance. All new venture opportunities demonstrate a certain amount of risk, some more than others. This tool identifies the amount of risk removed from the opportunity based upon the circumstances, requirements and features of the business model.
Purpose: The purpose of the Risk Readiness Survey is to determine how much risk has been removed from each of the 5 risk factors and overall for the proposed venture opportunity. The results of the Risk Readiness Survey provide criteria for the Goldsmith Venture Valuation Method.
Scoring: Check the box associated with the statement that most closely describes your response. The survey generates a Risk Readiness Level score for each of the 5 risk areas and an overall risk score. The scores reflect how much risk has been removed from a high risk business opportunity. The following scores reflect the risk levels associated with the business model:
A business plan is a unique document that is specific to a unique opportunity and a unique entrepreneur. It can be said that there are no two business plans exactly alike. Business plans range in quality from extremely poor to extremely good.
An investor will report that a well written business plan:
Description: The Business Plan Readiness Survey is an assessment tool to analyze business plans from an investor's perspective. The BPRL is not designed to cover every detail that should be included in a business plan. It is designed to cover the information that investors look for in evaluating the risk in a business venture opportunity. The survey allows the entrepreneur to score the business plan from two perspectives. One perspective simply evaluates whether the information suggested is addressed or not. The second perspective allows the entrepreneur to assess the quality of the information compared to the investor's expectation.
Purpose: The Business Plan Readiness Survey provides a structured methodology to evaluate the executive summary and the business plan from an investor's perspective. The structure consists of 5 risk factors critical to an investment decision: 1) execution risk, 2) product risk, 3) market risk, 4) management risk, and 5) financial risk. The survey provides a quantitative and qualitative method for analyzing each of these risk factors by analyzing: 1) presence of required content, and 2) quality of the content. The final scores for each risk factor provide an overview of the strengths and weaknesses of the business plan from an investor's perspective and where the entrepreneur should concentrate resources to improve the business opportunity.
Scoring: The assessment provides a menu of responses to each question ranging from poor, fair, good, very good, to excellent. If the question is not addressed, the scorer should enter "poor." All other responses will reflect the scorer's familiarity and experience with evaluating high-performance, venture funding-backed business opportunities. Entrepreneurs are strongly encouraged to get an "outsider" review from a knowledgeable expert who can provide an unbiased review.
A score is generated for each of the risk areas as well as the overall plan. A score of 90% or higher is excellent while 80%, 70%, 60%, 50% correspond with very good, good, fair, and poor respectively. Investors would expect scores 80% or higher in all risk categories as well as the overall score. A score below 80% in any single risk category would probably disqualify the plan for investor consideration.
Private equity investment involves an investor making an investment into a business venture in exchange for percentage of ownership. The percentage of ownership is a mathematical formula. The components of the formula are the pre-money value (present value), the amount of the investment, and the post-money value (sum of pre-money value plus the investment). The investor's ownership is the percentage the investment represents of the post-money value. The primary challenge in determining valuation is in determining the pre-money value (present value).
The Valuation Survey provides five different methodologies to determine the valuation of the proposed venture:
Description: The Valuation Survey tool applies the information gained from the Risk Readiness Level and other information and data provided to determine a realistic pre-money and post-money valuation. The tool provides multiple methodologies to determine valuation. Different valuation methodologies are more appropriate to different stages of venture development. The discounted cash flow method is more dependable and reliable for companies with actual products and revenues versus a startup or seed stage company with no product or revenue. The multiple earnings method is most appropriate for service-based companies with several years of revenue. The venture capital method is most appropriate for later stage companies with a history of revenue. This method uses an average industry price/earnings factor applied to the net present value of the fifth year's revenue projections to calculate a value. The Goldsmith Risk Readiness Method is most appropriate for startups that are pre-product and pre-revenue and early-stage companies with product and limited revenue. This method is based upon industry comparisons of average pre-money and post-money valuations of venture-backed investments by stage of development for the previous year. The traditional hypothetical valuation is a default valuation method which provides a traditional investment perspective based upon typical investor and entrepreneur criteria such as expected return on investment and percentage of equity participation. The traditional valuation is a hypothetical approach and incorporates no specific qualitative values or quantitative data relevant to the venture other than the amount of investment capital required.
Purpose: The Valuation Tool provides several methodologies to generate a value of the business prior to investment (pre-money valuation), the value of the business after the investment (post-money valuation) and the resulting percentage of ownership (equity) the investor receives for the investment. The user should determine which methodology(s) is most applicable for the valuation depending on the stage of the company, the quality of the financial model,
Scoring: To use the valuation survey tool requires that the Risk Readiness Level assessment is calculated and saved, and the information requested is provided in the "Client Survey" under "Valuation." The first information requested is the Price Earnings ratio for the industry sector. This can range from 5 to 80 given market conditions. Currently "20" is a good number to use if you are in doubt of the number. The P/E industry sector average can be found in financial web sites and business newspapers. Next enter the amount of investment capital being sought. Use the pull down menu to select the "Stage" of your investment opportunity: