VC’s “How to secure Venture Capital”
Follow these 10 steps to help you secure your dreams.
(1)Determine Whether Venture Capital Is Appropriate
Consider Alternative Sources Of Capital:
Bootstrapping By Providing Services For Hire
Relatives
Friends
Angel Investors (Former Successful Entrepreneurs In The Industry)
Corporate Partners
Equipment Leasing Firms
Banks.
(2)Find The Right Firm - Ask the right questions
Stage Focus - e.g. Does the firm invest in companies that have no revenue?
Geographic Focus - e.g. Does the firm invest in companies in the Southeast?
Industry Focus - e.g. Does the firm invest in Internet companies?
Size Of Investment Criteria - e.g. Does the firm invest as little as $500,000?
Return On Investment Criteria - e.g. Is the market large enough to create a 30% annual rate of return for investors?
Investment Style - e.g. Does the firm like to take a roll-up-the-sleeves, "hands-on" approach or a passive advisory approach?
(3)Prepare A Business Plan
Hook them or lose them in the first 2 pages - lead with a tight executive summary
Explain your company's "unfair" advantage - show why you will succeed in a sea of competition
Outline a well-defined product or service and target market
Provide good market data and analysis and a cogent plan of attack
Demonstrate that management has the necessary skills to execute its plan
Show uses of funds and concrete financial goals and milestones
(4)Secure An Introduction
Get professionals who provide services to venture capital firms and portfolio companies excited to work with you
Network your way to your target venture capital firms - elicit professionals' support and have them provide an introduction as a trusted intermediary
Target lawyers and accountants who provide services to the venture community
(5)Grab Firms' Attention
Focus, Focus, Focus - play to venture capitalists' short attention spans
Find strong, seasoned managers willing to work on the team
Demonstrate a very large future market opportunity
Prove the management team's ability to adapt rapidly and successfully to a changing environment
Show escalating barriers to entry in your market
(6)Make A Powerful Presentation
Get to the point - Brevity is the soul of wit
Focus on the market opportunity - Technology is a necessary but not a sufficient condition
Guide the presentation toward the management, the market and the money
(7)Follow Up With Additional Information
Bring up any adverse news or information first and control its dissemination
Avoid negative surprises
Provide complete information when requested. Make it as easy as possible to get to "yes"
(8)Understand The Valuation Process
Identify the major risks in your business
Reduce the perceived risks to increase the value of your company
Understand investors' return on investment criteria - e.g. discount rates for earlier stage companies are significantly higher than for later stage ones
Identify a clearly definable exit strategy
$20MM $40MM $60MM $80MM $100MM
$2MM 48% 24% 16% 12% 10%
$4MM 96% 48% 32% 24% 19%
$6MM N/A 72% 48% 36% 29%
$8MM N/A 96% 64% 48% 38%
$10MM N/A N/A 80% 60% 48%
Estimated Future Market Value Of A Company In Six Years (Horizontal Scale) Based On Dollars Invested In The Firm In Year Zero (Vertical Scale).
Source: Coopers & Lybrand L.L.P.
(9)Survive Due Diligence
Back up sales, revenue and expense claims with documentation
Organize records of all contracts
Secure all intellectual property rights
Audit historical financials
Examine legal documents with attorneys
(10)Close The Deal
Remember that the deal is not done until the money is in the bank
