Word On The Street

Winning Combination

Hit the jackpot with venture capitalists.

By Cynthia E. Griffin

Venture capitalists know that choosing a plan from the hundreds they receive weekly is risky business. Even though they turn down 99 proposals for every plan funded, there is no guarantee the one chosen will be a megahit.

In fact, Richard Kalenka, a partner at Price Waterhouse LLP in Melville, New York, estimates only one in 10 companies receiving venture capital will be a stellar success, returning five to 10 times the money invested.

To be a superstar, businesses need to possess certain characteristics. "They need a desirable product, breakthrough technology, or an intangible brand that will give them an advantage," says Kalenka, regional director of Price Waterhouse's National Venture Capital Survey. "There also needs to be a large, [relatively stable] target market [or one that will grow over three to five years]."

Perhaps the most important determinant is the company's management team. The members need to know when to bring in more experienced management and be willing to change direction. The final ingredient venture capitalists look for is impeccable timing: knowing when to go public or begin a marketing campaign, for example. Combined, these characteristics improve an emerging company's chances of becoming another Yahoo! or Netscape.

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This article was originally published in the February 1998 print edition of Entrepreneur with the headline: Word On The Street.

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