Raising Venture Capital Successfully
Raising Venture Capital Successfully
Raising Venture Capital Successfully
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Many of us believe that we have the next multi-million dollar idea that will revolutionize an industry. However, funding is usually the greatest obstacle in order to get a project off the ground. Raising capital is not an easy thing to do in any economy, much less an economy that is struggling. Elevator speeches and fancy poster board presentations will get you as far as the front door of an office, if you're lucky.
The objective of any VC is to financially benefit their investors through your company. They will buy in, filtrate whether or not it is successful, and find an exit strategy. It is important to be fully prepared when using venture capitalists for your business. Here are five basic guidelines to follow when funding through venture capitalists.
1. Its Launch Time
Most all venture capitalists are not looking to buy an idea, but are looking to see how well you have launched your company thus far. If they see you didn't put forth the effort of starting the company, they won't put forth the effort for you in funding the company. Business plans are as useful as a stack of old magazines to investors because no venture capitalist will read one! Spend the time on making your business startup successful rather than behind a computer typing out a 100 page business plan. You do not have to have your company in a fully operational stage, but you should have the ability to show the investors that you have initiated a successful startup for your company. Let the investors know the direction you see the company going in and ask for the funding to allow for your business to continue in that direction.
2. Know the investors
In today's market, most venture capitalists work through large companies, sometimes making it more difficult to find the personal business relationship most people predict they will find. There are different types of investors for the startup phase, expansion phase, and the buyout phase. It is important that you make it clear which type of venture capitalist you need to speak with before you ask for funding. It is hard for any individual to give money to someone they do not know or trust. Do your research before going into any meeting and look up company websites to see what type of companies they have invested in. Ask current companies how their experiences have been through funding with that particular venture capitalist. Most importantly, when looking for an investor, make sure that you take any and all information that they have to offer you. They would not be investing if they did not have an idea of where your company can go, so it is important not only because of their financial backing, but their business experience as well.
3. Back to the basics
Once you have started your company and know exactly what type of investor you are looking for, it is time to prepare your presentation to the investors. Make your pitch simple enough that a group of third graders could understand what your business model is. If they can understand, any venture capitalist can as well. Dress to impress and show confidence in your business and the direction you see your business going in the future. Bring along samples or prototypes of your products so the investors can have a hands on experience and get a tangible idea of what your company can offer to them.
Take the time to stop and ask the investors if they understand what your business ideas and ask them if they have any questions. If they do have questions and you do not know the answers, simply say that you do not know. It is very likely that they will have the answers for you, which they can contribute to your business if they do in fact give you their funding. Lastly, make sure they know exactly how much funding you are asking for and what stake in the company they will be receiving for that funding.
4. Don't put all your eggs in one basket.
It is likely that if a venture capitalist likes the business model you have shown, they will try and renegotiate the terms of their stake. It is important for you to be prepared before the fact with a written proposal for each individual. In this folder, you should include any information about your company, bylaws, current financials, and operating agreements. Showing your proposal to each investor will let them know your current thoughts and projections in the company, as well as set a guideline for negotiation. If your product or service is something that is highly sought after with investors, it puts you in control of the situation. If one venture capitalist sees that another investor is interested, it creates competition and will ultimately give your company credibility. Most likely this will make your negotiations favorable to you, driving each investor's stake lower until you reach an agreement that you feel is best for your company.
5. Maintenance
Once your company is funded through a venture capitalist, it is important to maintain a relationship with the investors. Always remember, you may control the company, but the investors can pull the plug on your funding at any time so make them a major part in all decisions and include them in the success of your business. Maintain constant communication and allow access to financial reports to your investors, giving them peace of mind that you are running a successful company. Healthy relationships between companies and investors can lead to future potential expansion with the confident funding to back the projects.
Today's economy is making it more and more difficult to find funding through banks, so many people are going through venture capitalists. Always remember when going through investors, make sure that you are prepared before asking for funding. Know exactly how much your company needs, and how much of your company you are willing to give up. Create competition between investors and always maintain a relationship with any potential venture capitalist that is involved in your company. If you follow these guidelines, using a venture capitalist to fund your ideas will be a smooth transaction.
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