Question

Raghav is a very creative person and has always been working on innovating products and services that can make living healthy and hygienic. He developed a design of an air conditioner with an inbuilt air purifier as well. Since he did not get any financial support from any bank, he approached Nirvana Vent (VC), a venture capitalist firm. Though VC liked the idea but it refused to help Raghav at the seeding stage and asked him to come again if needed during second round financing.

Why was seed capital not given by VC when it was ready to fund the second round financing?

Answer 1

Venture capitalists are typically very selective in deciding what to invest in and as a rule of thumb:

(1) They may invest in one in four hundred opportunities presented to it,

(2) Looks for the extremely rare, yet sought after qualities, such as :

(a) innovative technology,

(b) potential for rapid growth,

(c) a well-developed business model

(d) an impressive management team.

(3) Looks for an "exit" in the time frame of typically 3-7 years.

(4) Is inclined towards ventures with exceptionally high growth potential.

The VC do not fund for seed capital as its result and return both are not sure