Risks that Venture Capitalists Evaluate

The goal of venture capitalists is not to maximize all risks. Instead, they try to understand all risks in a business and weigh those risks with the return- the exit. Here are some risks that venture capitalists review:
Market timing risk
Venture capitalists ask themselves whether the business has been established at the right time. Although this risk is difficult to evaluate, it is an essential consideration. There are numerous stories of individuals saying they had the idea behind the Facebook establishment. But the market was not yet ready for it.
Business model risk
Before funding a start-up, venture capitalists must satisfy themselves that the start-up has a clear business model. The unit economics must seem to work. If not, there must be assumptions necessary to achieve profitability.
Market adoption risk
Venture capitalists look at the competition in the market. They are more likely to fund start-ups where there are no strong competitive players in the market. They also look at the barriers to entry.
Execution risk
To get funds from venture capitalists, a business must have a team with passion and right skill to reach their gold. If there are no skilled individuals, the team must be willing to find others to complement their skills.
Other risks that are evaluated by venture capitalists include technology risk, capitalization structure risk, platform risk, venture management risk, financial risk, and legal risk.


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