Advice for your business owner clients: forget landing venture capital.

• Author: Brocks, Michael

Despite a glamorous reputation, venture capitalists are risk averse.

After four years without any significant venture capital success stories, Google has given every entrepreneur a reason to dream of grandiose wealth while venture capital firms actively seek the next gold mine. Google was started six years ago by two 25-year-old graduate students who came up with a better Web search engine. After the initial public offering (IPO), each founder's stock holdings were worth more than $3 billion.

Arguably, Google may not have gotten off the ground without the backing of a few venture capitalists (VCs), including one of the founder's professor at Stanford, who parlayed a $200,000 investment in his protege students into $100 million. At a minimum, weaker financing would have delayed the founders for years, perhaps even long enough to miss their market opportunity.

Exception to the rule

Google has paid off exceptionally well for its early-stage investors, but the Google story is the exception, not the norm. The norm is much less glamorous. VCs, in spite of their "cowboy" reputations, are actually quite risk averse. In order to compensate for the probability of failure of their portfolio companies, they try to bet on "sure things."

So, what are the characteristics of firms that qualify in the eyes of VCs? Your clients who dream of sharing Google's success probably would need to share the following traits of successful IPOs:

* Star-quality leadership. The market defines a star as someone who has taken a startup from zero to $50 million in revenue.

* Proprietary technology. The technology must provide a competitive advantage in an industry with very strong growth prospects over the next five years.

* A top-tier management team. Before Google had its IPO, it hired a cadre of very seasoned executives who had a history of successful IPOs. The CEO of Google is 18 years older than the founders.

* A large potential market. The target market must have the potential of generating at least $1 billion in revenue.

* Proven market adoption. The best companies will have made sales to blue-chip customers before they are funded.

A client that does not meet the above criteria should seriously reconsider the pursuit of venture capital. Such a client should also be aware of a number of little-known facts and statistics before approaching VCs for investment. Chasing outside capital is an unpleasant and drawn-out ordeal.

You or your client will spend hours polishing and...