Chenango Capital is committed to investing in the very best early-stage deals. Seems obvious, doesn’t it? Of course, that begs the question: what makes a deal one of the “very best”?

1. A well-defined solution to a large, clear market need: Customers in the market must be experiencing pain – so much pain that they will gladly pay a reasonable price for the solution the company offers. There must be enough customers that the company can generate significant revenues in 3 – 5 years.

2. A solution that cannot be copied easily by the competition: Great solutions to big problems attract a lot of attention. We are looking for companies that have a defensible position that will make it difficult and expensive for others to compete with the company. This shows up as intellectual property (IP), know-how or other defensible attributes.

3. The ability to earn above-average margins: If the solution is really unique and truly addresses a dire need, customers will be willing to pay extra for it. Building a company takes longer and is more expensive than most people anticipate. Having generous margins can mean the difference between success and failure for a fledgling enterprise.

4. A strong management team: All venture capital firms, including Chenango Capital, prefer to have a top management team that is experienced in growing a business and exiting the business profitably for the investors. No one individual or team is perfect, however, so we are looking for management that recognizes its limitations and is willing to bring additional experience into the management team when necessary.

5. A realistic, lean, financing plan: Everyone hears stories about the great new companies that are funded with tens or hundreds of millions of dollars. These companies exist, and some of them grow into extremely large, successful companies. Most of them fail. We are looking for companies with total financing needs in the $.5 MM - $2 MM range before becoming cash flow positive or exiting. Even in today’s difficult financing environment, for the right deal, at the right pre-money valuation, we can syndicate raises in that range. Plans that call for multi-million dollar raises at some point in the future before the company can reach a significant inflection in value are extremely risky in today’s financing environment. We are not likely to participate in financing plans like that.

6. Clear exit potential in a reasonable period of time: Every business passes through several stages as it grows and develops. We are not interested in companies that plan to take 7 – 10 years to build the company sufficiently to attract exit partners. We are looking for companies that can use our capital efficiently to significantly increase value in the company in a shorter, more reasonably time period like 3 – 5 years. While we are committed to working closely with the entrepreneur to maximize the value of the enterprise, we are looking for entrepreneurs who understand that investors cannot achieve return without a liquidity event. Never lose sight of that fact.

7. Reasonable pre-money valuation: At the end of the day, we are purchasing a stake in your company. The ultimate determinant of whether we invest or not is the price you are charging for the shares you are selling. Because we specialize in early-stage financing, we know that we are looking for companies with pre-money valuations of $1 - $3 MM. With that type of valuation we will typically invest between $250K and $1 MM, possible in several tranches linked to milestone attainment. We believe that we have the ability to syndicate an additional $500K to $1MM depending on the deal. This means that investors will typically receive between a 20% and 35% stake in company, usually in the form of convertible preferred shares.