Get a Venture Capital Investment

You have everything you need to make your dream business a success except the funding. Isn't that what venture capitalists are for? This article will show you how to get their money.

Steps

  1. Don't bother trying to get funding unless you already have something going, relevant experience and connections, and an edge that will make your business really grow and attract and retain customers.
  2. Write a business plan and a formal pitch. If you don't know how, get help.
  3. Be clear about the deal. Why do you need money? How will you spend it? What's the deal for the investor?
  4. Apply only to VC's who have shown a willingness to invest in ideas like yours.
  5. Have a business that demonstrates the power of the idea in action. Good ideas are nice, but most VC's invest in an idea only when it's from a proven performer (think JK Rowling).

Tips

  • Use investment portals to your advantage. GetCapital.org is a great resource for connecting entrepreneurs with investors.
  • Know your customer really REALLY well. Your customer is your revenue. Your business means nothing without revenue. To be sure, you must also be profitable but profits start with revenue. I have seen folks use a single slide to set the stage for a day in the life of their customer to tee up the problem being solved. This kind of market awareness says that you understand your customer, have walked a mile in her shoes, and have developed a solution to a genuine problem.
  • Listen. Sometimes, investors who turn you down have valuable comments to make that can help you.
  • Know your business sector really REALLY well. If you are a technologist, hook up with a business person who knows the money side of the business. What are reasonable gross margins for your sector of the industry? What is the typical sales cycle like? What is a reasonable pricing and delivery model? What kind of investment is really needed to get the company to positive cash flow and profitability? These details are covered in the b-plan, but you need to be able to summarize stuff like this in your presentation.
  • Don't get discouraged. Most successful authors don't strike gold on their first attempt, and most successful business people don't raise the money they need on the first meeting.
  • You may think of it as a check in the mail, but it's more realistic to think of it as your in-laws moving in. It's not just money; it's a relationship.
  • Step one glosses over a critical piece of this process that being it is essential that you have the proper contacts. VCs I have talked to in the past are quick to point out that they all but never invest in deals wherein the entrepreneurs cold-call them. Cultivate relationships with people who can get you introductions to the proper partner at the proper VC.
  • The less you need the money, the more of your business you will get to keep. It's that simple.
  • Partnerships with reputable organizations show that your biz-dev dude has the kind of Rolodex to get the job done. Always a plus.
  • Like step 5 says: Nothing beats a big P.O. when pitching the value of an idea
  • Patents applied for or granted are huge barriers to entry, and build the intellectual property value of the company
  • Don't celebrate until the money is in the bank.
  • Get a good lawyer and a good accountant. They can be an excellent source of introductions for you. Ensure that they are experienced in working with start-ups
  • With your cultivated contacts, you can get things like a boilerplate b-plan that has been funded. Use this as a guide.
  • Not only be clear as in step three, but be "clean, crisp, and concise". Your pitch will need to establish in 10 slides or less: 1) The problem you are solving (the pain point you are relieving), 2) The size of the addressable market and how you will penetrate it, 3) Why you and your team are the ones to do it, and why you have a sustainable, unfair competitive advantage (hint: price is NEVER a sustainable competitive advantage), 4) Who has already vetted your idea and has signed up to buy it when it is ready

Warnings

  • Keep the presentation short. No, really. Seriously. I am not kidding. If you haul out your CTO to discuss the nuances of yield issues in the manufacturing of surface-emitting lasers, you are doomed. You need to sit the CTO, and put something into your preso like: 1) Yield is 5% industry wide for VCSELs, 2) We improve it to X%, 3) This results in an ROI of $100M for an investment of $50K for a typical customer. You get the idea. Show me the money.
  • Don't ask a VC to sign an NDA. This stamps you as a lightweight poser for a number of key reasons: 1) It says that you don't understand the process well enough to realize that VCs never sign NDAs, 2) It says that you are delusional to the point that you genuinely believe that nobody else has thought of doing what you are proposing to do. That kind of naivete gets you shown the door. Someone else IS doing what you are doing already, you just have not discovered them yet.
  • Pitch only to the partners. If the best you can swing is an introduction to an associate at the VC firm, work harder at developing your contacts. The partners make the decisions, not the associates. Mind you, you still need to suck up to the associates, as they can make things easier or harder for you, just don't waste a lot of time with them, as they are not the decision makers. They do, however, have influence depending upon the particular firm.
  • Be self-aware and choose the right front person for the group. The person doing the pitch should have superior presentation skills, and be very cool under fire. They must be able to stay on topic, stay on message, and keep a presentation moving forward. They must be able to answer questions directly, defer to their partners when appropriate, and not make wild shoot-from-the-hip statements. They must be confident but not cocky, and know when to shut up and listen and be respectful when people in the audience are making points or asking questions.
  • Be self-aware and understand when you are making ridiculous statements. If you do not already know what a hockey stick curve is, you should get to know what it is BEFORE putting one up on a sales growth slide, and not getting the inside joke. A hockey stick curve looks like a hockey stick laying on it back. Sales show small growth in years 1-3, and then miraculously take off in year 4 and double in year 5 leading to a positive EBITDA, and a huge exit in year 6. You need to show that kind of growth, but you need to be able to back the claim with a go to market plan that is defensible.

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