Skip navigation
2016

One of the biggest issues facing entrepreneurs is how to fund their businesses, particularly in the early stages of growth. This leads many to consider venture capital. However, the process is not easy.

 

Here are five things your business should do before talking with a VC.

 

34977526_s copy.jpg

1.     Make sure your business is VC-fundable

 

While venture capital gets a lot of space in the press, it only funds a fraction of a percent of businesses each year. Venture capitalists (and the “angel investors” that precede them) are looking for big, scalable opportunities. So, depending on the industry, if your business isn’t going to get to at least $50-$100 million or more in the next 3-5 years, don’t be surprised if the venture capitalist doesn’t want to talk to you.

 

This is also why VCs tend to disproportionately fund industries like tech and biotech. For industries focused on the consumer, they tend to come into the funding cycle later in the process.

 

2.     Refine your business plan and deck

 

While your business plan or pitch deck won’t alone get you funded, it acts much like a resume does in a job interview – it helps get you to the next level. Make sure you can clearly explain what problem your business is solving and why your team is the best suited to solve the problem. Clearly communicate your business model and why your approach is better than the competition (whether direct competition, indirect competition or competition that may come down the road). Address and overcome the key objections an investor is likely to have. Explain the milestones you have achieved, what you will achieve with your capital infusion and the scope of the ultimate opportunity. 

 

Doing this slickly and concisely, with graphs, charts and bullets is the current trend for frequently approached investors with short attention spans.

Carol Roth Headshot.png

3.     Get an introduction

 

If you want to ensure your business plan is never seen, send it in over-the-transom without any introduction. Seriously speaking, having an introduction from someone connected to your targeted VCs who can vouch for your team exponentially increases your chance of being seriously evaluated. 

 

Try your business banker, lawyer, accountant, circle of friends and other VCs to make those key connections. It will make a world of difference.

 

Click here to read more from small business expert Carol Roth.

 

4.     Enhance your team

 

At the end of the day, most venture capitalists are betting on the entrepreneurs. Using a racing analogy, if you are going to put money on a race, you bet on the driver first, then the car they are driving. If you are missing key experience or credentials that make you a credible team to pull off your plan and grow the company at warp-speed, fill in the team first so a VC will be willing to make a bet you can execute on your plan.

 

5.     Take the risk out

 

While venture capital is often referred to as risk capital, the reality is that those investors don’t like to take risk. So, the more you can do to eliminate execution risk, the better chance you have of finding funding.

 

This means you should advance your intellectual property, sign up customers and build out your business as much as you possibly can before asking for a big chunk of cash.

 

Frankly, if you go out and are really killing it early on, the venture capitalists will come to you.

 

About Carol Roth: Carol Roth is the creator of the Future File™ legacy planning system, “recovering” investment banker, billion-dollar dealmaker, investor, entrepreneur, national media personality and author of the New York Times bestselling book, The Entrepreneur Equation. She is a judge on the Mark Burnett-produced technology competition show, America’s Greatest Makers and TV host and contributor, including host of Microsoft’s Office Small Business Academy. She is also an advisor to companies ranging from startups to major multi-national corporations and has an action figure made in her own likeness. 

 

Web: www.CarolRoth.com or Twitter: @CarolJSRoth

 

Bank of America, N.A. engages with Carol Roth to provide informational materials for your discussion or review purposes only. Carol Roth is a registered trademark, used pursuant to license. The third parties within articles are used under license from Carol Roth. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

Bank of America, N.A. Member FDIC.  ©2016 Bank of America Corporation

When Warren Buffet was first starting out in business as an investor, naturally, he needed funds to invest. Like many small business people, he turned to friends and family to get his stake. Specifically, six close relatives and a college roommate helped Buffet get started.

 

Among those believing and investing in the young man was Buffet’s Aunt Katie. Over several installments during those early years, Aunt Katie eventually invested about $20,000 with her nephew. In an interview with Fox Business on the occasion of his 50th anniversary in business, Buffet was asked what Aunt Katie’s investment was worth when she passed away,

 

“Oh, probably a couple of hundred million dollars,” replied Buffet.

 

Similar to Warren Buffet, Richard Branson was also given an early assist by an older relative, in his case, his mother. Branson says that when he was 16 he wanted to start a magazineSteve-Strauss--in-article-Medium.png to give the youth in Great Britain a voice, especially given the war in Vietnam. The problem was that he had no money and neither did his family.

 

It was fortuitous that around this time his mother found a bracelet on the street. She turned it into the police as a lost item. Two months later, when it still had not been claimed, the police said it was legally hers to keep. Wanting to support her son’s dream, Branson’s mother sold the bracelet for $200 and gave it to him, which he used to start the magazine (and what would eventually become The Virgin Group).

 

Click here to read more articles from small business expert Steve Strauss

 

While the story of family and friends helping entrepreneurs is not an unfamiliar one, it still is interesting. It turns out that more often than not, small business owners turn to their extended tribe to get help with launching and growing their businesses.

 

This fact is borne out by the latest Bank of America Small Business Owner Report. The Report is a bi-annual survey commissioned by Bank of America that looks at the views and aspirations of small business owners. While this fall’s Small Business Owner Report examined, among other things, economic confidence and hiring trends, it also surveyed the extent to which small business owners rely on friends, family, and community in their businesses.

 

It turns out that they do, a lot. Consider these interesting statistics from the survey:

 

  • More than half of those surveyed (53%) rely on family to serve important roles in their business (advisers, employees, investors, partners, etc.)
  • More than one-third (38%) have received financial gifts or loans from family and/or friends to fund their business
  • Nearly two-thirds (62%) report that residents in their community actively shop at small businesses

 

Sharon Miller, Managing Director and Head of Small Business for Bank of America says,

 

“For this report we looked closely at the roles that family, friends and communities play in supporting small business owners. The vast majority of entrepreneurs depend on their family for emotional, operational and/or financial assistance, and more than one-third have at some point received financial support from family and/or friends to fund their business . . . while nearly half say the local community plays an important role in the success of their own individual enterprise.”

 

There is a view out there that entrepreneurs are iconoclastic lone wolves; that they are this unique breed of individual who can buck a trend and head off in an uncharted, unique direction that only he or she can see.

 

That is a misconception.

 

What we see from this latest Small Business Owner Report is just the opposite. Oh sure, entrepreneurs have to have a vision – whether it’s creating an investment firm or a student-run magazine or launching a dry cleaner – but the fact is, they can’t and don’t do it alone, and they don’t want to.

 

Whether it is enlisting relatives to invest in the dream or hiring their kids to clean the shop or recruiting elders to act as advisors, the fact remains that entrepreneurs weave together a rich tapestry of people in order to create businesses that serve us all.

 

About Steve Strauss

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss.

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

Bank of America, N.A. Member FDIC.  ©2016 Bank of America Corporation

Filter Article

By tag: