Tips for obtaining venture capital funding
Many small business owners find it extremely difficult to obtain financing from traditional lenders. This leaves them looking to other sources in order to get the money they need for their small business. Venture capital funding can be a great way to get startup financing. However, it should be noted that obtaining venture capital funding can take considerable work. You will have to be able to entice and hold the interest of the venture capitalist that you are approaching. Any prospective venture capitalists will be looking closely at your ability to manage and successfully use any money they put into your company. It is important to understand what will help and hurt your chances of acquiring venture capital funding. Here are some tips for obtaining venture capital funding-
- Don't waste a prospective venture capitalist's time-It is important to understand that any particular venture capitalist will receive hundreds if not thousands of executive summaries every year. If you fail to keep your executive summary simple, easy to understand, and concise you will find that it is quickly thrown aside. You want to be able to answer the following questions in the summary of your business plan-
1. What is the purpose of your company?
2. How will your product or service solve your customer's problem or need?
3. What is the market potential for your business?
4. How much money do you need?
5. How long will it take for your business to be a success?
- Do prepare a well researched business plan-While a venture capitalist may base his initial decision on your executive summary he or she won't consider you if your business plan fails to be as impressive. You need to make sure that you can follow up your executive summary with a business plan that is well thought out and researched. Not only can a well written business plan help you attract the interest of a venture capitalist it will also help you set goals for your small business and develop a plan as to how you will reach them.
- Don't overstate your company-Keep in mind that any venture capitalist will be experienced in judging the reality of your business. You should be realistic on how large your market is and what your small business' ability to address the market is. The venture capitalist will be looking to see if you have a realistic grasp on your business. In addition, it is a mistake to downplay the risks or the competition for your business. You want to show that you have a clear understanding of the market that your small business sits in. The bottom line is that the more honest and open you are with a venture capitalist the more they will respect your ability to manage your small business.
- Do consider funding sources that are "out of the box"-Keep in mind that lending conditions have changed dramatically from even a few years ago. This means that certain venture capitalist firms that may not have even considered your business a short time ago may be willing to invest with you now. However, it should be noted that conversely venture capital firms that would have been willing to give you money may not even consider your business today. This means that small business owners need to be creative in thinking about what kinds of venture capital firms they will approach for the financing they need. It can be helpful to network with other small business owners in order to determine what venture capital firms they are using and other information that you can gain that will help you attract the interest of investors.