Venture capital investors (either as part of a venture capital fund or functioning as individual investors) have very specific goals and objectives.
Although it's their job to help SMBs succeed, altruism isn't the primary motivation behind their investment decisions.
Many small business owners fail to appreciate the factors and forces that motivate venture capital investors. As a result, entrepreneurs typically enter VC investment negotiations with unrealistic expectations or never even appear on venture capital investors' radar in the first place.
The bottom line is that entrepreneurs have a stake in learning as much as they can about venture capital investors before initiating a search for VC funding.
Like everyone else, venture capital investors are motivated by profit potential. If your SMB is not currently profitable and shows no signs of earning substantial profits in the near future, it's unlikely that venture capital investors will be interested in your company.
Typically, venture capital investors look for opportunities that are on the verge of a major breakthrough and have the potential to deliver substantial equity returns over the next several years.
Venture capital investors sometimes target companies with highly innovative products or processes. They are especially keen on businesses that are developing proprietary game-changers that will revolutionize the industry or marketplace.
Although innovation often results in a major financial payoff, VC investors may be more interested in investing in innovation as a way to further their other interests in the sector and/or to leverage synergies that benefit other companies in which they are invested.
Venture capital investors embrace risk with open arms. The vast majority of their investments don't deliver significant profits. In fact, most venture capital investors are used to losing money on a sizeable percentage of their investments.
But the flipside of risk is reward. While you might be ecstatic to see a 50% return on your investment in your company, venture capital investors shoot for 100% or even 200% ROI, so plan on feeling the pressure to perform at peak levels throughout your relationship.