The best new businesses are those with innovation incorporated in the business process or product.  The dictionary defines innovation simply as the introduction of a new idea, method, or device.  However, when it comes to venture capital, this definition is taken a step further: innovation is an idea or method that is new and improved. 

It is not enough to present venture capitalists (VCs) with a new idea.  The old saying that ‘anything that can be invented has been invented’ is somewhat true.  Most inventions are simply innovative improvements on an old idea.  Your business idea must be a concept that can impress VCs as revolutionary and marketable to customers as something they need.

Innovation doesn’t need to be restricted to useful products like cell phones or automobiles.  Service innovation is highly in demand as well.  If your entrepreneurial venture is a service business, show your potential financing partners how you have designed your service as something newer and more reliable than previous methods.

Fulfilling an Outstanding Need

An innovative business idea should fill a need.  Your potential customers should find your product or service something they need in their life to make it easier, improved, or more fulfilling in some way.  In that sense, it should fill a niche in which you can emerge as a prominent provider of your service or product.  Don’t just make a new golf club.  Create a club design that can help solve a slice or cure a hook.

Innovative Demographics

Your target customer could be part of your innovation.  Show venture capitalists how your product will sell to teenagers with limited budgets or to wealthy yacht owners.  Your market research should demonstrate to VCs how your product or service will be in demand to what market segment.

New Knowledge

If you have researched a new and improved idea, method, or device, display your work proudly before a group of VCs.  Innovation in service or products can be found with new knowledge gleaned from research.  Reveal your scientific methods and results and how they can improve the lives of consumers. 

Your innovative strategies are what will set you apart from other businesses when trying to obtain venture capital funding.  Let your innovation shine and use it to convince venture capitalists that your business will be in demand.

When you began your entrepreneurial venture, you most likely had a simple yet vague concept, such as, “I want to build a better to-go coffee cup,” or “I want to offer software solutions that streamline the construction bidding process.”    

Since then, you have performed due diligence, interviewed other business owners, conducted market research, had new thoughts about your business, and solidified your concept.  It is now time to clarify and crystallize your vision and commit your mission in writing before you present it to venture capitalists.

Formalizing your mission and vision is not a quick process.  You need time to write down ideas, revise them, share them, and finally produce a succinct written statement about how your business will operate and what will happen in the next five years.

Brainstorm and Draft Ideas

Take time to brainstorm how your vision will translate into your business.  How will it operate?  Who will run it?  How will it profit and sustain? 

Writing down your ideas also unleashes your creativity.  It helps you define the choices of your business and the results you want. 

The process of writing down your ideas and goals also helps solidify your commitment to your vision.  Studies show that people who succeed more are those who have written goals.  This certainly bodes well for your efforts in securing venture capital!

Edit and Refine

Once you brainstorm all of your ideas onto paper, it is then time to refine them into a coherent system of sentences.  All the drafted ideas you retain should be ones that reflect your core system of values for your business.  Chose the ones you know are important to you and how your entrepreneurial venture should be envisioned.

Do not formulate a term paper or novella sized mission and vision.  You will need to make tough choices to keep your statements short, succinct, and to the point.

Share with Others

When you have a good first (or second) draft, you should pass copies around to your business partners, associates, and others you trust who could offer helpful and constructive suggestions.  Other sets of eyes can spot grammatical errors, poor word choices, and perhaps provide deeper insight to your mission and vision statement.

Finalize and crystallize

Take time after your revisions and suggestions to incorporate everything into a crystal clear final draft.  The version you want to show the people who may finance your endeavor should be articulate and reflect your positive enthusiasm for your new enterprise.  If done correctly, it should also motivate venture capitalists to want to see your vision fulfilled and help you make it happen.

Venture capital (VC) funding has been around for decades, funding some of the most famous companies, including Google and Apple.   In order to succeed in obtaining VC financing, you need to convince the firm or group that your business will succeed in making a profit in a short amount of time, usually three to five years.

How does a VC firm decide to invest in a business?  They will invest in a business that has the best chance of making the aforementioned profit.  To secure the funding from venture capitalists, a business needs clearly demonstrate a solid and viable strategy.

Do the Research

Your new business needs to have a market base.  Who will your customers be?  You need to know exactly who your target clients are before you meet with a VC with a funding request.  Do the market research necessary to get a clear picture of your customers and know that your business idea is viable.

Fill a Niche

Your business needs to be different from the competition.  A VC firm does not want to finance another “software solutions” company.  Find where your business fits into the existing market and determine your niche.  You’ll be more successful at obtaining VC financing if your business can fill an outstanding need in a market. 

Employ the Best

Part of your business strategy should be hiring a leadership team who are experts in their field.  With an experienced team, your business has solid oars to row through rough times, which is important from the venture capitalists’ perspective. 

Make Achievable Goals

What are your business goals?  Indeed, you want to make a profit, but how will you achieve that goal?  Write down the steps that your business will take to become profitable and sustainable.  Goals should be achievable and believable by the venture capitalists if you want to earn their trust.

Emphasize the Strengths and Work on Weaknesses

Be upfront about your business strengths and weaknesses to VCs.  Be sure to emphasize your expertise, your leadership team’s edge, and how the business will excel.  However, lay out what your business needs to do to improve in areas.  Venture capitalists want to know how your business can handle the weaknesses.  In addition, discussing your weaknesses also shows the venture capitalists that you can accurately and realistically judge the business environment. 

Your business strategy will be one of the biggest selling points to venture capitalists.  Refine your strategy and make it strong, achievable, and believable – and you will find that venture capitalists will be equally excited in your vision. 

What’s in a name?  A rose by any other name would smell just as sweet, right?  While there is truth in this adage, if the rose was actually named a Cronkelstench, people may be less likely to stick their nose in the flower.  The same holds true for your business name!  If you want to succeed in obtaining VC funding and developing branding, you need an intelligent name that suits the business.

Your business name is one of the most important marketing choices you will make.  Though your business name alone will not make your business succeed, the image it evokes can be the difference in sustaining a profitable business – or losing customers who move onto your competitor.  You need a name that works for you and attracts venture capitalists and customers to want to do business with you. 

What are some good elements in a business name?

Select a Name That Means Business

Think about what type of credibility your business name exudes.  Most likely, people who want to keep their money safe will not deposit funds into Bob’s Bank when First Ultimate Security Bank is right down the street. 

Your business name is crucial in reflecting a positive image to customers and what your business can do for them.  Many new businesses are hurt from the start because the owner did not give much thought about its marketing value.  Make sure your business name reflects what your business does.  With a credible name, venture capitalists will take note too. 

Chose a Distinguishable Name

If your new business is not the only type on the market, you need a name that distinguishes you from your competition.   If you the only software program that offers real-time data streaming in the market, then reflect this advantage in your name.  Instead of choosing the name, “Silicon Software,” opt for “Streaming Software Solutions” to differentiate your company from the crowd. 

Simultaneously, while you may be tempted to incorporate your name into the business, think twice about this strategy.  Remember, venture capitalists all want to know about the “exit strategy,” which is typically a buy-out or IPO.  Can “John’s Software Programming” be a publically held company?  Chances are that the incorporation of your personal name makes the company seem too local or small.  Think big – and make sure that your business name reflects an idea that can be easily spread throughout national and international markets. 

Elements to Avoid

When carefully choosing an effective business name, spend some time evaluating whether it meets any of the following negative criteria.  If it does, rethink your name to make it better.

• Clever or confusing names that do not properly reflect your business
• Vague names that tell nothing about the nature of your business
• Hard to spell or pronounce names usually detract customers
• Misleading names – don’t name a business Merle’s Designs if you sell golf clubs

The name game is vital for the success of your business, starting with whether venture capitalists will take you seriously.  Think about your business name carefully.  Come up with a number of choices, and select the best one that will attract customers and venture capitalists alike. 

Before you ever sell your first product or service, you need money to create and manufacture the product, and money to market your service or product to potential customers.  That is where start-up or seed money comes into play.

First, there are many ways to secure start up money.  Your business could obtain start up money from:

• Your own pocket – If you have capital available to put into your business idea, always start with your own funds.  While you should not take out 2^nd and 3^rd mortgages on your home, other investments that have grown and paid good dividends can be used to help your business take off.  Remember, investing yourself gives all of the returns to you as well. 

• Loans and Grants – The Small Business Association (SBA) has a guaranteed loan program for small businesses where you could borrow tens of thousands, and in rare cases, even hundreds of thousands of dollars.  The U.S. government also has thousands of grant monies available for small businesses.

• Investors – Borrow money from friends and family.  Borrow from other investors who have faith in your business idea.  Venture capitalists are also known to provide seed money to good business ideas.

Once you have the appropriate seed money in hand, what is the best way to use the money?  

Your Beginning Operations

Your new seed money should be used wisely to tweak your product(s) and know your customers.  Perform as much market research as you can afford to do.  Do it yourself or use market research firms who specialize in obtaining good data and helping to formulate proper questionnaires.  The better you know your customers and their buying habits, the better you will be able to develop a product that sells and market it to the right demographic.

Use seed money to conduct your product research and begin manufacturing operations.  Your business won’t sell anything if it has nothing to sell.

Your seed money should also be used to market, market, market.  Get your business name branded and known by your target audience.  Develop your marketing plan and start advertising your products and services.  You need customers, so let them know how they need you.

Getting a new business off the ground and running at full speed is not an easy task.  But money from the right sources makes it easier.  The more you can know about your customers and products, the better situated your business will be to hit the ground running.

Are you an entrepreneur ready to launch your new business?  If you are seeking private equity funding from venture capitalists, you will likely receive more attention if you show them you invest in yourself and your company. 

When you invest in your company, you show venture capitalists that you have confidence in your abilities and strengths, and that you are taking a financial risk in the success of the company as well.  With that type of positive attitude toward your business venture, it helps give you an edge when looking for other investors.

Invest Your Own Money

Of course, one of the biggest ways you can invest in your company is by putting up your own money and assets.  That doesn’t necessarily mean you need to sell your home or get a 2^nd and 3^rd mortgage in order to secure money for your business.  However, you can put money from other investments, like selling stocks, bonds, or investment real estate, that can raise liquid capital to help fund your “seed” money.

Not only can you invest money, but also your own assets.  Do you have vehicles you can donate?  How about a state-of-the-art computer system?  Perhaps you even own a commercial real estate warehouse you can use for your business.  By using your own money and assets, you gain an advantage in having to use less leverage from other people’s money.

Take Business Courses and Seminars

Not only can you invest money and assets into your company, but you can invest in yourself as well.  Do you feel you are well qualified to design and manufacture great products, but are lacking in business administration skills?  Enroll in college courses that teach basic business administration, such as accounting and management.  You can also find numerous business seminars where you can get great information and training on starting and running a business.  Anything you can do to improve your skills and expertise will pay dividends with venture capitalist firms.

If you plan to start a business from scratch and put forth your full time efforts to make it work, do what you can to invest in your business.  Invest money.  Learn something about running a business.  You can be sure that your confidence will shine through and impress the VCs with whom you talk. 

You have a great idea for a new business.  You have a business plan forming, and you foresee a great market need for your product or service.  All you need is start up money to transform your business idea from paper into a live business.

First, you should always have an accurate estimate of how much money you need.  Never think, “$20,000 should do it.”  You need to have a good plan on how you will spend that start-up money.  Do you need to rent an office?  Do you need to do additional market research?  Know how you plan to spend the money before you get it to ensure that you maximize your chances for success.    

With an accurate estimate in mind, you can then secure start-up money for your business – if you know where to look.  While you may not have access to millions of dollars to really jumpstart your new business, funds are available that can transform your idea into reality.  Here are five options you can use to secure quick start-up financing:

1. Your Own Money – Don’t always expect only others to finance your business ideas.  If you want others to invest in your business, you need to show them you believe in it too.  Put as much money you can afford toward your business venture.  Sell your stocks and bonds.  Liquidate large assets, or use a portion of your savings.  Keep in mind that another good reason to use your own money is that you get all the return.

2. Friends and Family – Don’t be afraid to ask your family and friends to invest in your business idea.  Show them that you are confident it will work.  Present a business plan with realistic goals and success figures.  Your loved ones will most likely be the ones who believe most in you.

3. A Partner – Not everyone goes it alone in the world of entrepreneurship.  See if you can find a partner with whom you can go into business.  Both of you can invest money, assets, time, and experience.  In addition, having help with all the legwork of starting a business can be a big help to your long-term success. 

4. Your Bank – Ask your bank for a personal loan.  If you are a long-time customer with good credit history, you should be able to obtain a loan or line of credit that can help your business get off the ground.

5. SBA – The Small Business Association guarantees millions of dollars in loans to small businesses.  These loans are financed through traditional banks, but with the help of the SBA guarantee, you can get adequate start-up financing.

If you are excited about your new business idea and wish to get it off the ground, start now to get the financing you need.  Make a plan.  Determine how much you need to get started.  Then go to the sources listed above and start selling yourself and your business to them. 

When you sit before a group of venture capitalists who are considering lending your new business money, how will you convince them that your business, out of perhaps dozens similar to yours, is the one they should invest in?   

If you put yourself in the shoes of a VC and have before you 10 entrepreneurs all with a similar idea, which one is the best?  How do you choose?  Most likely the entrepreneur who has delivered the best added value to their business idea will be the one who deserves your start-up funds. 

What is Added Value?

Whether your business idea is in a manufacturing or service industry, added value comes when you put additional value above the cost of the products used to manufacture an item, or in the case of a service, an added value above what is considered normal service.

Say for instance that you are starting a new business that manufactures carbon fiber fabric.  Though this is not a new product, your entrepreneurial venture can improve the processing of the carbon fiber fabric by including adhesive properties, or certain high-density textiles.

In a service business, you could deliver an in-demand service, such as software that has added features that make the programs user-friendly, or contain modules that help specific businesses.

Your added value could even be a certain niche in which your business operates.  It could be a regional niche, or a niche focusing on certain groups of customers.  Take a look at your business niche and find out if that is indeed part of your added value.

How to Show Off Your Added Value

Venture capitalists will want you to quantify your added value.  They want to see numbers.  It isn’t enough to say that you have a bonus material in every widget.  Do the financial analysis and present just how much money your business saves with added value, or how much more money it will make by selling the added value with the product.

Of course, you will want to use realistic numbers.  You can’t sell a new and improved mousetrap for $1,000.  Conduct the market research necessary and show the numbers of people who would pay extra for the added value of your product. 

When you can stand out among the dozens or even hundreds of new businesses vying for venture capital funds, you can bet that a reasonable VC group will consider your business in more detail.  Make it obvious and prove that your added value will be a money maker.

Entrepreneurs who start a new business from scratch may not have a financial history to prove that their business idea works.  In forming a business plan, projected financial data must be incorporated in order to show investors how much money the business plans to make.  However, it is important that you tread carefully in this section, as overstating your financial projects or not justifying them accurately will not bode well for your funding. 

Accurate Assumptions

When you create a projected financial plan, you must make assumptions about your income and expenses.  Expenses may be easier to project since there may be more solid data, such as rent information, known cost of goods, etc.  However, in making your income projections, be sure to incorporate realistic numbers and financial goals that can be accomplished.  You can incorporate industry averages or the revenues of your competitors, as long as you justify how and why the numbers are related to your business. 

Consider how many units of your product you need to sell and at what price you need to sell them.  Will there be a seasonal spike in sales?  Do you expect to expand your marketing and thus your customer base?  Make sure you go over any factors that may affect your sales income. 

Keep in mind that when assuming income and expenses, it is always best to over-assume expenses and under-assume income projections.  This shows venture capitalists that you are cautious and realistic about operating a business. 

Fixed and Variable Expenses

As mentioned, expenses may be easier to project.  Try to obtain the most complete data about your expenses, such as amount of rent you will be paying, salaries, estimated electricity, material and production costs.  Always break your expenses into fixed and variable.  Fixed expenses are those that are projected to remain the same, such as monthly rent, insurance costs, and cost of certain materials.  Variable expenses are those that may vary from month to month, such as electricity and utilities, hourly salaries and overtime, fuel costs, etc.

Projecting Income, Cash Flow, and Balance Sheet Statements

Your income statement will be an estimate only.  Using your expense calculations, you can then consider a conservative sales figure.  If you have enough data and a good marketing plan, your income statements can be projected 2 to 3 years into the future.

Your cash flow statement must show how your business will be able to meet its expenses month to month.  It may include cash from sales, as well as financing activities.  Remember, cash is king; project this statement as accurately as you can to keep your business with enough cash to stay afloat.

Balance sheets will explain all the capital contributions the owners have invested, as well as the projected assets intended to purchase and liabilities, such as loans, that will need to be met.  The balance sheet is meant to be a snapshot picture of the owners’ equity status at any given time, usually at the end of quarter or year.

Projected financial statements are not easy to assume.  But with the right financial analyst and experience in the industry, these can be created using the best and most accurate estimated data available.

Are you approaching the right VCs with your business idea?  In the U.S. alone, there are thousands of VC firms and individuals who are ready to invest their capital in new businesses.  However, each VC has a particular industry or business focus for their investment funds.  You can save a lot of time by doing your homework and researching VC firms to know the right ones you should target.

Do It Yourself Research

If you have the time, you can find a number of online directories of venture capitalist firms.  If you do research on your own, be sure to only use the most recent directories.  You don’t want to find a great VC firm that has since closed shop or changed their investment focus.

Investment Firm Research

With the daunting number of VC firms existing in the U.S., it may be worth your while to hire an investment research firm.  These firms conduct research on venture capitalist firms and keep accurate, comprehensive, and up-to-date databases on which firms offer private investment funds to what types of businesses.  These research firms are relatively inexpensive and can save a great deal of time and money for you.  Pay by the inquiry or pay a small monthly or quarterly subscription for valuable data anytime.

Choose by Industry

What is your business industry?  Is your business idea in a technology manufacturing industry?  Or are you involved in a service industry focusing on investment advice to customers?  You will find that there are venture capitalist firms available for private equity funding for almost any industry, but you need to find the right one for your idea.  

Many VC firms will also focus their equity funding into very large businesses with the ultimate goal of incorporating and offering an IPO on the stock market.  On the other hand, some VCs will look at smaller to mid-size businesses that plan to remain privately owned.  Take a look at a venture capital firm’s preferences when choosing the ones with whom you want to market your plan. 

A well researched list of potential venture capitalists will help your new business find the best financing options available.  It saves time and money and allows your leadership team to focus marketing plans and presentation efforts to the venture capitalists most likely to take notice.