SCREENING CRITERIA: THE

CHARACTERISTICS OF HIGH-
POTENTIAL VENTURES
• Venture capitalists, savvy entrepreneurs, and investors also use this
concept of boundaries in screening ventures
• summarizes criteria used by venture capitalists to evaluate
opportunities, many of which tend to have a high-technology bias
• However, these criteria are not the exclusive domain of venture
capitalists
• The criteria are based on good business sense that is used by
successful entrepreneurs, angels, private investors, and venture
capitalists.
MARKET ISSUES
• Higher-potential business can identify a market niche for a product or
service that meets an important customer need and provides high
value-added benefit to customers.
-customers are often willing to pay a premium for convenience and
efficiency
• Lower-potential opportunities are represented by a poor
understanding of customer requirement and market demands.
- They also frequently target expensive-to-reach customers that are
loyal to existing brands in slow growth markets.
MARKET STRUCTURE
• Market structure is significant and is indicated by the number of
sellers, distribution channels, market size and growth rate, level of
differentiation, number of buyers, sensitivity of demand, and other
forces around competitive advantage.
• A fragmented or emerging industry often contains vacuums and
asymmetries that create unfilled market niches and market where
resource ownership and cost advantages can be achieved.
• In addition, those where information is profitable, but not so strong
as to be overwhelming, are promising.
MARKET STRUCTURE
• Market structure is significant and is indicated by the number of
sellers, distribution channels, market size and growth rate, level of
differentiation, number of buyers, sensitivity of demand, and other
forces around competitive advantage.
MARKET SIZE
• A minimum market size of $100 million sales is attractive. In the
medical and life sciences today, this target boundary is $500 million.
• Such a market size means, it is possible to achieve significant sales by
capturing roughly 5 percent or less and thus not threating
competitors.
• For example, to achieve a sales level of $1 million in a $100 million
market requires only 1 percent of the market.
GROWTH RATE
• A successful market is always growing. An annual growth rate of 30 to
50 percent creates riches for new entrants as companies will focus on
growth through new customers versus taking share from competitors.
• A $100 million market growing at 50 percent per year has the
potential to become a $1 billion industry in only a few years, and if a
new venture can capture just 2 percent of sales in that first year, it can
attain sales of $1 million.
• . If it just maintains its market share over the next few years, sales will
grow significantly.
MARKET CAPACITY
• Another signal of desirable market opportunity is full capacity in a
growth situation,that is fulfilling demand the existing suppliers cannot
meet.
MARKET SHARE ATTAINABLE
• The potential to be a leader in the market and capture at least a 20
percent share can create a high value for a company
COST STURUCTURE
• The goal for a firm is to become the low-cost provider and avoid
declining revenue conditions.
• Attractive opportunities exist in industries where economies of scale
work to the advantage of a new venture.
• Firms with lower cost customer acquisition costs also allow room for
increased profitability.