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.
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.
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.
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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.
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