Telus New Ventures BC: Assessing the Opportunity :. WillPate.org
This blog gives a good summary of VC requirements.
However, in practical terms, one of the biggest issues is how to work out what your business opportunity is likely to be worth and how much equity you will have to give up for their cash.
The expected "Internal Rate of Return" for the VC needs to be about 35%. That is the vc will expect his investment to increase in value by at least 35% compound per year.
So in order to reach a valuation you need to prepare 5 year cash-flows at at least three different levels of trading. Best case, expected case and worst case (the worst case will become the basis for the VC's valuation in negotiation though in actuality he will be looking at the expected case and hoping it will reach that level.
Once you have your 5 year forecast you can look at the returns and growth potential per your forecast and then look to existing businesses with that profile. You will need to establish a price earnings ratio for the particular sector of industry and expected growth profile. The business valuation can then be calculated from applying the price earnings ratio to the returns per your worst case scenario. Once you have that valuation you can work back to what equity value the shares have to the vc at the investment point.
Hey it is of course absolutrely necessary that your "story" stacks up and is evidenced to a level that enables the VC to believe in it.