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Venture Capital
1. What is a Venture Capitalist?
2. Who is This Good For?
3. When is This the Best Choice for
Me?
4. When is This Not Advised?
5. Tips for Getting Money.
6. Ingredients You'll Need on
Hand.
7. Idea Cafe Tips.
8. Watch Out For...
9. Web Links.
1. What is a Venture Capitalist?
A venture capitalist can be an individual or a venture capital
"firm." They're all scouting for highly profitable, very fast growing,
early to mid-stage ventures to sink money into.
Notoriously inpatient, they expect big and almost immediate returns
on their investment. Venture capitalists don't just invest their
own money; they raise funds from wealthy individuals and institutional
investors (such as pension funds) who seek to allocate a portion
of their holdings into potentially very-high return investments.
Venture capitalists are seasoned business and financial managers
who look to be able to repeat formulas that have worked for them
in previous investments. So they typically stick to specific fields
they know well.
2. Who is This Good For?
Companies that have bootstrapped beyond the very beginning
stages and are starting to have something to show for their efforts;
Companies that need a lot of money. It's generally not
worth venture capitalists' time to manage a lot of little investments.
Companies that have the potential for explosive growth.,
On the hockey-stick growth curve that makes entrepreneurs drool,
venture capitalists want to get in just at that little flat part
before the growth soars up the stick.
Companies that can go
public; this provides the most likely vehicle for vc's to
get their investment back out in cash after a few years.
Hi-tech Companies: although there are some venture capital
firms that invest in non-tech ventures, the majority of past venture
success, and, therefore, future interest, is in technical and related
arenas.
3. When is This the Best Choice For Me?
When you can take your market by storm with a big shot of capital.
You've come up with your product, refined it, and you've got a small
but fast-growing base of important customers. What you need is several
million dollars to push you to the next level -- a splashy consumer
marketing campaign, state-of-the-art manufacturing equipment --
so you can capture significant market share.
When you're willing to share, or give up, control of your company;
venture capitalists not only take a big chunk of your business in
exchange for their money, they want seats on the board, and may
bring in their own selected people to replace the founders.
When your company will soon go public but you need extra
capital to pay the expenses of the process. This stage provides
quicker cash-out and less risk to venture capitalists than earlier-stage
investments.
4. When is
This Not Advised
If your company has solid but unspectacular growth prospects,
look elsewhere, to an investor who appreciates stability. Venture
capital companies want home runs, not singles and doubles.
When you can't stand the thought of giving up control.Venture
capital firms like to use their own proven management formulas and
people. They may not have the patience to give you the chance to
prove yourself. So if you don't like watching from a luxury box
on the sidelines, venture capital isn't for you.
When yours is a service business; only a few venture capital
firms believe service businesses can be profitable enough fast enough.
5. Tips for Getting Money
Provide a business plan that includes everything they expect;
it's your ticket to any further consideration;
Show that your company or product is on the verge of taking
off big.
Have answers ready about your longterm strategy, such as
how soon you might go public.
Keep in mind that bankers look at your past performance, but equity
investors look to the future. It's not what you did for me
yesterday, but what will you do for me tomorrow.
Please, don't call them "vulture capitalists." They really hate
that.
6. Ingredients You'll Need on Hand
- A great business plan.
- Financial statements that document your company's progress
so far.
- Up-to-the-minute market research on your product or service.
- Details on the background and personal strengths of your management,
product development and marketing teams.
- Basic financial
package.
7. Idea Cafe Tips
Do your homework. Research venture firms just like you'd
study the habits and needs of an important new customer. Each firm
has their preferences and specialties, so find out which fit your
own profile best, so you won't waste their time and yours.
Drop names. If you know any person the venture capitalist
might know -- a client, educator, head of another firm, corporate
board member, neighbor -- let recognized names slip into your cover
letter, biz plan and/or phone call to help lift you out of obscurity
and maybe get your plan pulled out from the stack.
Be "hot." What industries/types of companies have received
most of the latest batches of venture funding? If your company looks
similar, your chances of getting noticed will increase, and the
urgency for funding you may speed up. If your company is clearly
a different breed, look to VCs in a different geographic area, or
focus on getting your funding from other sources, such as strategic
partners, angels or a private placement.
8. Watch
Out For...
Pretenders. Some companies want you to pay them to find
investors. Don't bother. A legitimate venture capitalist won't charge
you for looking at your proposal, and if they like it, finding other
investors to join with them.
Time-consuming presentations. As with
angels and private
placements, you may have to make multiple presentations to venture
capital firms, and that'll leave you with little time to run the
business.
Being over-clever. You want to impress them, but keep your
information clear, to-the-point, and credible. Special effects are
not needed.
Losing time waiting for an answer. VCs are extremely busy,
so they may not get back to you with any answer any time soon. Don't
stand around waiting, keep shopping your plan to other firms.
9. Web Links
America's
Business Funding Directory
Some 13,063 funding sources, including listings of angels
and other would-be investors.
Venture-Preneurs
Network
Offers services to start-ups, including locating venture
capital.
Finance
Hub
Intersoft Solutions Inc.'s site features more than 100 links
to venture capital sites on the Web, as well as links to more than
200 banks.
Money
Hunter
Lists of consultants, matchmatchmaking service for angels,
investors and growth companies.
Venture
Capital Resource Library
Links to everything from locating a venture capital firm
to details of security law and text of articles, all related to
getting investors.
Venture Associates
Ltd.
A Denver financial consulting firm run by James Arkebauer.
Information on finding angels, venture capital, investment bankers,
management consultants and more.
Venture Capital
Online
Information and networking opportunities for entrepreneurs
and venture capitalists.
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