Venture capital, simply stated, is a combination of both money and expertise invested by a firm or multiple investors in a company whose dreams exceed their finances. The company approaches a venture capital firm with a business plan for approval. The VC does due diligence, and either approves of, or disapproves of the business plan, with an offering of funding. Venture capital funding offered by most venture capital funds has a life of 10 years, with the first 3 to 5 years representing the implantation of funding, and the rest involving management, fine-tuning of, and consultation on the investment by the venture capital interest.
How To Approach A VC, And What With...
Every entrepreneur has a vision, but being able to communicate that vision to a potential investor in an articulate and meaningful manner can be difficult. Before approaching an investor, a company must have a business plan. Make your vision tangible, by expressing what drives you and what lies at the essence of your company within that plan.
When will your company turn a profit, and how much? Be realistic. VC investors will do their due diligence before investing - harboring unrealistic expectations and attempting to sell them will alienate any venture capital investor.
Be aware of potential obstacles and pitfalls common to your industry, and your contingency plan in such an event.
Develop a marketing strategy, and clearly delineate your target market, as well as a particular market segment, which must be large enough to be measurable, accessible, and profitable. Don't exaggerate your market share. There's always competition, and it's crucial that you point out who they are, and what sets you apart.
Develop a complimentary sales strategy. A venture capital firm wants you to make money and hunt it out, not just spend their money.
Ensure that you have a management team in place, with a make-up that emphasizes experience.
Appoint a CEO. In the initial flush, a company may fail to realize the importance of a CEO, and opt for a collaborative structure, but the VC firm is investing in a business, not an innovative social experiment.
Target an appropriate VC. Approach a VC firm with an investing policy that matches your company, playing to their specific area of expertise. The benefits of networking can not be down-played. By leveraging existing business relationships, a company exponentially increases the likelihood that their business plan will be considered.
Don't fail to respond to the needs and demands of your VC throughout the implementation of funding, and beyond. Keeping in constant contact and anticipating concerns will ensure a healthy relationship, as well as enable a culture of communication with partners and other external bodies that will serve your company beyond the lifespan of the investment.
A well-articulated and comprehensive business plan can bring in substantial investment from a venture capitalist, but if it fails, the experience can allow a company to articulate a viable and profitable business structure, and find that they may not even require venture capital. Even if your search for venture capital proves fruitless, think of it as an exercise in analyzing the skills, strengths, and weaknesses of your organization.
Johan De Leon is an experienced internet marketing executive specializing in online marketing, CRM and business development.
