Difference between revisions of "Criteria for evaluating venture opportunities"

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Criteria for evaluating venture opportunities
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{| class="wikitable"
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!Criteria
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!Attractiveness
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!
 +
|-
 +
!
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!Highest potential
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!Lowest potential
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|-
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|'''Industry and markets'''
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|
 +
|
 +
|-
 +
|
 +
|Changes way people live and work
 +
|Incremental improvement only
 +
|-
 +
|Market
 +
|Market driven: identified recurring revenue niche
 +
|Unfocussed: one time revenue
 +
|-
 +
|  Customers
 +
|Reachable; purchase orders
 +
|Loyal to others and unreachable
 +
|-
 +
|  User benefits
 +
|Less than one-year payback
 +
|Three year+ pay back
 +
|-
 +
|  Product life
 +
|Durable
 +
|Perishable
 +
|-
 +
|Markte structure
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|Imperfect, fragmented competition or emerging in industry
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|Highly concentrate or mature
 +
|-
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|Market size
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|\$100M to \$1B sales potential
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|Unknown, less than \$20M
 +
|-
 +
|Growth rate
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|Growth at 30-50% or more
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|Contracting or less than 10%
 +
|-
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|Market capacity
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|At or near full capacity
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|Under capacity
 +
|-
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|Market share attainable (<5 year)
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|20% or more; leader
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|Less than 5%
 +
|-
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|Cost structure
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|Low cost provider, cost advantages
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|Declining costs
 +
|-
 +
|'''Economics'''
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|
 +
|
 +
|-
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|Time to break even
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|Under 1,5-2 years
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|More than 4 years
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|-
 +
|ROI potential
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|25% or more
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| Less than 15-20%
 +
|-
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|Capital requirements
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|Low to moderate, fundable
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|Very high, unfundable
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|-
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|Internal rate of return potential
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|25% or more per year
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|Less than 15% per year
 +
|-
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|Free cash flow characteristics
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|Favorable, sustainable 20-30% or more of sales
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|Less than 10% of sales
 +
|-
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|Sales growth
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|Moderate to high (+15% to +20%)
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|Less than 10%
 +
|-
 +
|Asset intensity
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|Low/Sales \$
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|High
 +
|-
 +
|Spontaneous working capital
 +
|Low, incremental requirements
 +
|High requirements
 +
|-
 +
|R&D/captial requirements
 +
|Low
 +
|High
 +
|-
 +
|Gross margins
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|Exceeding 40% and durable
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|Under 20%
 +
|-
 +
|After tax profits
 +
|Great than 10%
 +
|Low
 +
|-
 +
|Time to break even
 +
|Less than two years
 +
|Greater than four years
 +
|-
 +
|'''Harvast issues'''
 +
|
 +
|
 +
|-
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|Value added potential
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|High strategic value
 +
|Low strategic value
 +
|-
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|Valuation multiples and comparable
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|20X PE/E
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|<=5XP/E
 +
|-
 +
|
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|8-10XEBIT
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|3-4XEBIT
 +
|-
 +
|
 +
|1.5 -2 X revenue
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|<= 0.4Xrevenue
 +
|-
 +
|
 +
|8-10Xfree cash flow
 +
|-
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|Exit mechanism and strategy
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|Present or envisioned options
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|Undefined; illiquid investments
 +
|-
 +
|Capital market context
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|Favorable valuations; timing, capital available, realizable liquidity
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|Unfavorable, credit crunch
 +
|-
 +
|'''Competative Advantage Issues'''
 +
|
 +
|
 +
|-
 +
|Fixed and variable costs
 +
|Lowest
 +
|Highest
 +
|-
 +
|Control over costs, prices and distribution
 +
|Moderate
 +
|Weak
 +
|-
 +
|Barriers to entry
 +
|
 +
|-
 +
| Propretary protection
 +
|Have or can gain
 +
|None
 +
|-
 +
| Response/lead time
 +
|Competition slow, napping
 +
|Unable to gain edge
 +
|-
 +
| Legal, contractual advantage
 +
|Proprietary or exclusivity
 +
|None
 +
|-
 +
| Contracts and networks
 +
|Well-developed; accessible
 +
|Crude
 +
|-
 +
| Key people
 +
|Top talent; an A team
 +
|B or C team
 +
|-
 +
|'''Management team'''
 +
|
 +
|
 +
|-
 +
|Entrepreneurial team
 +
|All-star combiation; free agents
 +
|Weak solo entrepreneur
 +
|-
 +
|Industry and technical experience
 +
|Top of the field; super track-record
 +
|Underdeveloped
 +
|-
 +
|Integrity
 +
|Highest standards
 +
|Questionable
 +
|-
 +
|Intellectual honesty
 +
|Know what they don't know
 +
|Do not want to know what they don't know
 +
|-
 +
|'''Personal criteria'''
 +
|
 +
|
 +
|-
 +
|Goals and fit
 +
|Getting what you want but wanting what you get
 +
|Suprises
 +
|-
 +
|Upside / downside issues
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|Attainable success / limitted risk
 +
|Linear, on the same continuum
 +
|-
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|Opportunity costs
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|Acceptable cuts in salary etc
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|Comfortable with status quo
 +
|-
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|Desirability
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|Fits with lifestyle
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|SImply pursuing big money
 +
|-
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|Stress tolerance
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|Thrives under pressure
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|Cracks under pressure
 +
|-
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|'''Strategic differentiation'''
 +
|
 +
|
 +
|-
 +
|Degree of fit
 +
|High
 +
|Low
 +
|-
 +
|Team
 +
|Best in class
 +
|B team
 +
|-
 +
|Service management
 +
|Supervisor service concept
 +
|Perceived as unimportant
 +
|-
 +
|Timing
 +
|Rowing with the tide
 +
|Rowing against the tide
 +
|-
 +
|Technology
 +
|Groundbreaking
 +
|Many substitutes
 +
|-
 +
|Flexibility
 +
|Able to adept
 +
|Slow stubborn
 +
|-
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|Opportunity orientation
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|Always searching
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|Operating in a vacuum
 +
|-
 +
|Pricing
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|At or near leader
 +
|Undercut competitor
 +
|-
 +
|Distribution channels
 +
|Accessible
 +
|Unknown
 +
|-
 +
|}
 +
 
 +
Part of: [[M10-S1 - Reading - Opportunity Recognition- Jeff Timmons|M10-S1 - Reading - Opportunity Recognition- Jeff Timmons]]
 
[[Category:mbi]]
 
[[Category:mbi]]
  

Latest revision as of 19:54, 27 August 2020

Criteria Attractiveness
Highest potential Lowest potential
Industry and markets
Changes way people live and work Incremental improvement only
Market Market driven: identified recurring revenue niche Unfocussed: one time revenue
Customers Reachable; purchase orders Loyal to others and unreachable
User benefits Less than one-year payback Three year+ pay back
Product life Durable Perishable
Markte structure Imperfect, fragmented competition or emerging in industry Highly concentrate or mature
Market size \$100M to \$1B sales potential Unknown, less than \$20M
Growth rate Growth at 30-50% or more Contracting or less than 10%
Market capacity At or near full capacity Under capacity
Market share attainable (<5 year) 20% or more; leader Less than 5%
Cost structure Low cost provider, cost advantages Declining costs
Economics
Time to break even Under 1,5-2 years More than 4 years
ROI potential 25% or more Less than 15-20%
Capital requirements Low to moderate, fundable Very high, unfundable
Internal rate of return potential 25% or more per year Less than 15% per year
Free cash flow characteristics Favorable, sustainable 20-30% or more of sales Less than 10% of sales
Sales growth Moderate to high (+15% to +20%) Less than 10%
Asset intensity Low/Sales \$ High
Spontaneous working capital Low, incremental requirements High requirements
R&D/captial requirements Low High
Gross margins Exceeding 40% and durable Under 20%
After tax profits Great than 10% Low
Time to break even Less than two years Greater than four years
Harvast issues
Value added potential High strategic value Low strategic value
Valuation multiples and comparable 20X PE/E <=5XP/E
8-10XEBIT 3-4XEBIT
1.5 -2 X revenue <= 0.4Xrevenue
8-10Xfree cash flow
Exit mechanism and strategy Present or envisioned options Undefined; illiquid investments
Capital market context Favorable valuations; timing, capital available, realizable liquidity Unfavorable, credit crunch
Competative Advantage Issues
Fixed and variable costs Lowest Highest
Control over costs, prices and distribution Moderate Weak
Barriers to entry
Propretary protection Have or can gain None
Response/lead time Competition slow, napping Unable to gain edge
Legal, contractual advantage Proprietary or exclusivity None
Contracts and networks Well-developed; accessible Crude
Key people Top talent; an A team B or C team
Management team
Entrepreneurial team All-star combiation; free agents Weak solo entrepreneur
Industry and technical experience Top of the field; super track-record Underdeveloped
Integrity Highest standards Questionable
Intellectual honesty Know what they don't know Do not want to know what they don't know
Personal criteria
Goals and fit Getting what you want but wanting what you get Suprises
Upside / downside issues Attainable success / limitted risk Linear, on the same continuum
Opportunity costs Acceptable cuts in salary etc Comfortable with status quo
Desirability Fits with lifestyle SImply pursuing big money
Stress tolerance Thrives under pressure Cracks under pressure
Strategic differentiation
Degree of fit High Low
Team Best in class B team
Service management Supervisor service concept Perceived as unimportant
Timing Rowing with the tide Rowing against the tide
Technology Groundbreaking Many substitutes
Flexibility Able to adept Slow stubborn
Opportunity orientation Always searching Operating in a vacuum
Pricing At or near leader Undercut competitor
Distribution channels Accessible Unknown

Part of: M10-S1 - Reading - Opportunity Recognition- Jeff Timmons

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