Last year I had the good fortune to raise some venture financing for my business. I did have a slight advantage because one of my employees had previously been a venture capitalist and gave me some advice. However, the process was still challenging. Here are seven key pieces of advice based on what I learned:
1. Understanding your business is key.
Venture capitalists will pick apart your projections, operations and vision. You probably already have a great instinctive feel for your business, but the challenge when dealing with VCs is being able to succinctly articulate this. Keep in mind that VCs are financiers, so the ability to talk about your operations, growth and other aspects of your business using numbers is critical to impressing venture professionals.
2. Know when to raise capital.
It seemed to me that VCs became most interested once my business has started to “prove” that there was a market for our service. The venture capitalists I spoke with talked about looking for companies where the injection of capital would change the trajectory of the business.
3. Prepare for a long slog.
Raising venture financing is like taking an additional job. The amount of effort and time required was amazing. I recommend treating the process in the same way you approach making sales. We kept very careful records of who we were speaking with, when and the right follow-up items. Since so many of the meetings are similar, with a similar set of questions, having one place where you keep all information is important!
4. Approach VCs the right way.
Venture investors are looking for great teams. One way to prove to the VC that you are a top-notch entrepreneur is to get introduced to them by people the VCs trust. Venture capitalists will be much more interested in your business if they are introduced to you by someone they know. The best “warm introductions” are from successful entrepreneurs/executives.
5. Practice your pitch.
We had a 15-page PowerPoint presentation that we used to pitch VCs. By the end of the process I had cut it down to 12 pages and could deliver it in about 15 minutes. Since most investors give you between 30 minutes and an hour for your first meeting, you need to be very concise in delivering your message.
6. Have due diligence materials ready.
We put together projections, operational stats and related legal files (as recommended by our lawyer) in one place online so that we could share the information with interested investors right away. We worked hard to keep momentum going when investors showed interest.
7. Hire a good lawyer.
Venture terms are constantly changing. VCs negotiate investment terms constantly; most entrepreneurs do so only once or twice in their careers. Without the help of an experienced venture lawyer I don’t know how we would have gotten such a good deal.
Raising venture capital is a difficult process, but it can really help grow a business. Preparation is key to succeeding at the venture capital game!
Editor’s Note: This article was previously published at OPENForum.com under the title: “7 Tips for Raising Venture Capital.” It is republished here with permission.
Thank you for some great tips. There’s a lot of learning to do, when it comes to VC funding, that’s for sure!
The Franchise King
Excellent points. How many VCs did you end up seeing?
Any thoughts on how this new stimulus package that is supposed to have banks lending more cash will effect new business venture capital?
I am sorry but this is at best a primer for any presentation. If you just struck a deal with a VC, what did it look like? Exits, mezzanine? Costs? Upside-downside.
There is no meat here. I gotta believe that anyone at the VC stage in their business is already beyond this.
Hi Mike, that’s exactly what I think the article was intended to be — for those who don’t know much about venture capital and want a basic primer.
Entrepreneurs have all levels of knowledge about a subject …. We don’t purport to be speaking to those who are experienced at getting VC money — there are plenty of sites that take a deep dive into venture capital. But that’s not what Small Business Trends intends to ever become.
Well, I don’t quite see how at this day & age it is advisable to go after VC in the US; the conditions demanded are deplorable.
However, if you are willing to look a little beyond the horizon, there still is hope.
About 9 months ago. my company decided to launch a substantial growth drive, for which expansion capital was needed. A clear No-Go here in the States; but we finally came across someone in “old Europe” who gave us great service.
If you are in hightech, chances are they can help you. Check them out : eSolve Capital (http://esocap.com)