A new company started by a fresh, enthusiastic entrepreneur will often choose a private corporation as its business form.  With a start up company, the entrepreneur will not only have to fill key management and director positions, but also seek out a board of advisers. These are the people upon whom the entrepreneur will heavily rely to take his or her new business idea to the next level, as well as even help in obtaining venture capital.

The board of advisers can help transform a start up company into a viable investment opportunity for a venture capital firm. Their experience, status, and networking contacts are always a benefit, especially during the funding phases. Here are some other top qualities you need on your start up board:

Share the Vision

Does the candidate share your vision with your product or service? It’s essential that you get board members involved who are receptive to your enthusiasm for your idea.

Successes and Failures

A good board member is one who is not only successful, but has his or her share of setbacks. This kind of experience is invaluable in providing advice for the new entrepreneur in making wise decisions.

Experience with Growth Companies

If you are able to locate board candidates who have previous experience with growth companies, all the better! Their advice will be key in getting your company in front of a venture capital firm for an investment opportunity.

Specialty in Operations

Experienced board candidates will usually be executives or even CEOs of existing companies, but they should have a particular specialty. Consider your industry. The advice from a finance executive, medical operations manager, law firm partner, insurance company VP, or technical research executive could be the catalyst in getting approval from a venture capital firm.

Committed and Available

The board members you choose may share your vision, but not be able to commit to the duration of a board term. Their availability with other projects or commitments may prevent them from giving you the attention you need with your new start up.

Don’t be tempted to ask a great choice to become a board member just because of his or her status. Make sure they can commit to your business growth as well.

Be wise in your choice of board members. Your key board advisers could be the people who help your new business idea turn into the success you dream.

Once you have successfully presented and interviewed with a venture capital firm, you may undergo a second round of qualification in order to be considered a “finalist” for venture funding.  In this process, one of the important steps a VC firm must take is valuating your start up business.

What is business valuation? And how does a VC firm valuate a company that is not yet earning revenue?

Below are a few ways that a VC firm analyzes your product, people, and markets to determine whether a business capital investment is a good choice. Here are a few steps you’ll encounter in the valuation process:

Comparables

A start up company with no documented revenue history may be valued much like real property – through comps or comparables. A VC firm may determine a business investment opportunity by looking at other existing companies with strong similarities to the one they are considering. They will talk to other investment analysts and specialists, examine 10K reports, and perhaps even research public documents to find good comps.

DCF or NPV Method

Whether a company is earning revenue or not, a VC firm may perform a discounted cash flow (DCF) or net present value (NPV) method to determine current value. By taking the projected cash flow for the next three to five years, a VC firm can adjust cash flow factors, risks, and assumptions to determine if the company is a good business investment opportunity.

Size of Market

VC firms will definitely take a look at the size of the potential market. Knowing whether a new start up company can capture a percentage of an existing market share could give them insight into current venture funding valuation.

People in Your Company

It’s not just the product or service that makes your new company successful – it’s the people too. This is actually one of the top factors VC firms will use to valuate a company. If a new company has an exceptional management team, it is more likely to succeed and meet projected financial targets, and thus, this factor increases the value of your start up. 

Product Qualities

Of course, a good business investment opportunity will solely rest upon the product in question. Your new business idea or product will be heavily scrutinized about its uniqueness, intellectual property or patent potential, and even brand strength.

Be prepared to be flexible and sharing with your information if a VC firm wishes to valuate your company. With your cooperation, you can be sure that a VC firm can make a valid venture funding decision.