Are You Sexy Enough to Attract Venture Capital?

7. Can the company go public or be acquired? If neither of these events occur, there's little chance of a real payday for the venture capitalists. The requirement also represents a double-edged sword.

First, are the company's founders willing to go this route? People who want to run family businesses don't go public or get acquired. Second, does the company have the ability to go public? A desire to do so is just that, but actually getting such a deal done requires a great business, guts, some luck and a lot of money upfront.

8. Can the company achieve $25 million in sales, and are there prospects for $50 million to $100 million in sales? With $25 million in sales, a company can generate the level of profits that makes the business worth enough so that a venture capitalist can become involved.

Let's say, for instance, that a $25 million business brings $5 million to the bottom line and that the VC invests $10 million and owns 50%. Let's assume that the company goes public at 20 times its earnings, suggesting a value of $100 million. The VC who owns 50% of the company -- hence 50% of the value, or $50 million -- records a return of five times the original investment. That is generally considered a successful investment for most venture capitalists.

If you answered "no" to any of the preceding questions, with possible exceptions for Nos. 1 and 6, institutional venture capital is probably not an option for your company. Edison Venture Fund's Martinson is particularly firm on question 8. "If there is no possibility you will hit the $25 million benchmark within five years, pursuing institutional venture capital is simply a waste of time," he says.

Given these kinds of hurdles, it's no wonder few companies land institutional venture capital. The supplicants beating a path to Edison Venture Fund's door seem to bear this out. "We see 2,000 plans each year," Martinson says. "We might visit 300, seriously consider and conduct due diligence on 50, and invest in eight to 12."

If your plan does qualify for venture capital, by all means start looking.