Business Article - Raising Venture Capital
Raising venture capital is something few companies wish to do. Venture capital is risky, and depends on the success of the company for it to payoff. Most venture capitalist are highly selective of which companies they choose to invest in, and can make it difficult for both startup and relatively unestablished companies. The majority of venture capitalist – especially those offering substantial amounts – want to see the likelihood of a high growth rate within a relatively short amount of time (3 – 6 years). Because of this demand, the companies most likely to secure an adequate amount of investment are technology and science field related.
This does not mean that smaller, unproven companies cannot raise venture capital. There are numerous venture capitalist who are seeking yet-unproven companies who show the potential for success. The venture capitalist who are willing to take this chance are looking for certain aspects that demonstrate the potential of the company. This includes the foundation on which a successful business is run. A detailed, professional business plan, a solid management team, likelihood of being able to terminate the investment early, and a high return potential after the first year. Companies that can demonstrate these qualities and possibilities are have a very good chance of raising venture capital.
Every company has the ability to raise their chances for venture capital. Steps can be taken to make the company more desirable to potential funds.
Business Plan and Proposal
Many think that a business plan and a proposal are the same. They are not, and both are necessary. A business plan will detail all aspects of the business. Statistics for current or projected sales, a list of current or anticipated customers, current investors and shareholders, current or anticipated project growth, and assets are all information that should be including on a thorough business plan. This will demonstrate the risk and potential that the funds will be involved with, and the likelihood of profit within the next few years.A proposal, on the other hand, will be interactive and personal. It can consist of a PowerPoint or storyboard, and will detail each aspect of the business: market, management, business location, customer statistics, etc. Show the venture capitalist the info they care about. If the potential for profit, especially early profit, is high, than you will capture the interest of funds. The average venture capitalist is looking for a minimum 5% profit on their investment. Ideally, your company will provide 15% - 20%.
Taking the time to prepare these two items will demonstrate one more thing to your potential investor – professionalism. It shows passion for your company, and the willingness to put in effort. A venture capitalist will be more likely to invest with someone who actively works for growth and profit.
Identify Potential Funds
Before approaching a venture capitalist, it is important to do adequate research. Wasting the time of a venture capitalist is a good way to be blacklisted among the networks, and to reduce the chances of investors. Does the potential investor have a general interest in the area your business falls? Are they currently looking to take on new investments and hear proposals from companies? Do they have the financial means to offer what you need? These questions should all be taken into consideration before approaching a venture capitalist with a business plan. It will reduce the overall number of proposals you will need to make, and the time searching for capitalist. Making a list of potential funds should be done before approaching any company. There are many updated lists of current venture capitalists, the most popular being found at the National Venture Capital Association website.Potential funds should be identified by many different qualifications, including the willingness to work with a company at your size/stage, the cash available, and sector. Once you have created a list, research each venture capitalist individually. Go to their website and read the available portfolio. Be sure that the fund is working in your particular business.
Once the list have been further narrowed down, research the venture capitalist's company. What is its track record with other companies? How long has the funds company been established, and how many companies has it made investments in? What was the success rate of those companies, and what did they specialize in? Finally, when was the last time the venture capitalist's company made an investment? A company with recent investments is more favorable than a company that has been out of the loop for ten years.
Identifying information about the company is usually secured via press releases and the venture capitalist' website portfolio. Sometimes, if you have the right networking connections, you may be able to talk to a business owner directly who has experience with your prospective company. Other times, the owner may keep a blog, providing a means to communicate with him or her directly. No matter the method taken, the ideal company you want will have few board sittings, recent investments, and readily available cash.
Contract Sales
No matter the purpose of your company, getting a contract sales/service deal with a customer will greatly increase the interest of venture capitalist. Failing to show any interest or potential clients will make an investor leery about funding your company. A contracted sales deal will show that there will be at a least some startup profit.
Adequate Management
A successful company is never run by one person. A management team will be needed to adequately run each section of the business. At least one highly qualified person should be assigned to each section of your company: finances, sales, negotiations, etc. The company should have a secured CEO, CFO, COO, and vice president. A venture capitalist will want to see his investment immediate go to work. Having to wait for the company to hire employees will be a large turn off for potential funds.
Uniqueness
What is unique about your service or product? Are there any others like it currently on the market? If there are others on the market, what makes your better than the rest, and why should the venture capitalist invest in you and not the competition? If your product/service is unique, what is the market range for it? Will it be greatly in demand, and how well equipped are you to meet that demand?Be prepared to answer these questions when meeting with the potential investor. Better yet, be on top of the game and add this information to your initial proposal. A unique product that meets a demand will draw the interest of more funds than that of a product no different than a thousand others. If you feel that your product does meet a need or goes beyond what's currently available, have concrete proof to substantiate it. Statistics of current needs are one such items, as are statistics of current sales in your product area. A venture capitalist will not simply take your word for it.
Be Professional
When meeting for a proposal, first impressions are everything. Dress like a professional. Even if your company is yet to launch, wear business attire and bring organized notes. Have a firm handshake and make an effort to appear calm and relaxed. Speak clearly and smoothly, pausing occasionally to gather your thoughts. Every effort will be noted. Someone who is unable to articulate, to be organized, and act professional will hardly be trusted to make a profit.Likewise, make an effort to be professional not only in manner, but also in presentation. Learn the 'lingo' of venture capitalist. Interrupting every few sentences to ask for clarification will make you appear ignorant of the purpose and needs of venture capitalist, and will instill doubt about your knowledge of earning them a profit.
If your company fails to secure venture capital after several attempts, another option is known as angel capital. Angel capital is a essentially a 'private loan' made by family, friends, or even complete strangers with a fair amount of money. An angel capitalist will be able to supply a fair amount of start up money, perhaps just enough to demonstrate starting success and profit. This will allow potential venture capitalist to see that the company does indeed have the profit potential proposed, and may make it easier to secure funds.
Raising venture capital is rarely ever easy. It takes effort and patience, and your willingness to work through this process will be something venture capitalist take notice of. Making a thorough business plan is always the first step; this will show you any holes or missing information in your company before proceeding. Once you are satisfied with your company, research potential funds and schedule a proposal. Be organized, clear, and concise. Do not waste the venture capitalist time, and demonstrate that you know what they want and are able to give it.
A venture capitalist is only interested in making a profit for the smallest investment possible. Show them how this is possible, and funding will eventually be found.