Venture capital is one of the few financial resources a startup or small company can access to obtain large scale funding for growth and expansion.  However, attracting a VC firm and convincing them to invest in your business venture is not easy.  In fact, only the best business ideas with the best people will be lucky enough to receive a nod from a venture capital firm.

Having a great business idea and plan is not always enough.  Entrepreneurs may have a knack for creativity and developing business ideas, but communication and sales may not be their strong point.  An entrepreneur who recognizes this fact will be wise to hire a public relations and communications expert to be the front person for the company.

Benefits of a Public Relations Expert

• Contacts - Experienced PR people have a long list of contacts and networking resources.  They know what media sources to contact when attempting to make a promotional announcement, and may also know the right contacts who may know somebody who knows somebody in a venture capital firm.  Having a wide stretch of network contacts can be a great benefit for a new business.

• Media Coverage – Your PR person can secure beneficial media attention before your business makes a presentation to a venture capital firm.  A PR specialist will have the ability to write attention grabbing press releases that could result in free publicity from news sources.  Positive clips from newspaper interviews or feature stories, or even videos from broadcasted news, can grab the attention of VCs.  

• Great Presentation Skills – The right PR person will make the perfect spokesperson for your group.  Their smile, cheerful attitude, and ability to communicate clearly and answer questions can thrust your business brand and reputation into the right VC hands.  In many new business cases, the entrepreneur is a great central figure for the business model and development, but not always the best choice to make a presentation to potential investors.  Make sure that when you get the chance to present to a VC firm that you choose the right person to perform the main speaking role.

Choosing a PR consultant or hiring a full-time PR spokesperson should be done carefully.  Your PR choice could result in big savings in advertising costs with the right free publicity received from news outlets.  Take a look at PR consulting firms and see if that is the right option.  Sometimes the right choice is to hire a freelance PR specialist who can devote more time to learning your business and have a better understanding when making presentations. 

Insist that you review a potential PR person’s experience and success.  Your PR person should have experience and verifiable results in the areas you need, whether it is in presentations or media publicity. 

Taking your business to the next level may require large funding from venture capitalists.  Consider the possibility of hiring an experienced PR consultant to be your front person and helping make your company look its best.

Part of a good business plan is a plan for exiting the business.  Indeed, even you, the entrepreneur, should have a plan for your business where you will no longer be running it.  If you are looking for venture capital funding, having an exit strategy is even more critical.  Remember, venture capitalists receive the most profits when an exit strategy is realized, such as an IPO or acquisition. 

But what is an exit strategy, and how does one conceive of a sound and strategic exit strategy?

An exit strategy is the plan for an entrepreneur or business owner to exit the business.  An exit could take one of many forms.  The business could be sold, all assets could be liquidated, or the business could go the public investor route with a public stock offering.

Liquidate the Business

Some entrepreneurs form a business with the intention of short term gain rather than a lifetime job and income.  Growing a business to end up with a large equity balance on the balance sheet may be the right strategy for a young entrepreneur who has bigger dreams and ideas.  Once the business hits the equity goal, all assets could be sold and debts paid, leaving a nice profit for the entrepreneur.

Likewise, a business that fails is likely to go this route as well.  If an entrepreneur exhausts all means of trying to keep the business breathing to no avail, the liquidation option may be the best exit strategy to get out without further losses.

Sell the Business

Rather than calling it quits and selling the business assets, an entrepreneur could make an exit strategy to sell the business to an interested party.  This strategy may be good for an entrepreneur who also does not want a long-term commitment to the business, but desires to make a profit from his or her efforts.

Selling a business could either be to another entrepreneur who wants to run a business for himself.  Or it could be a strategy to become acquired by a larger business.  Many small business entrepreneurs have gone this route.  YouTube, for example, was formed by former PayPal employees and was subsequently acquired by Google for $1.6 billion – which is not a bad exit strategy.

Opt for an IPO

The initial public offering (IPO) of a company is what many entrepreneurs aspire to accomplish.  A successful private business that has shown growth and revenue expansion can be highly desired by investors.  By offering the business as a public stock company, the entrepreneur releases his or her ultimate hold on the company and puts it in the hands of a board of directors.  The entrepreneur could stay on as CEO or simply cash out his share of stock options.

Whatever the exit option, a successful entrepreneur will have a plan.  The exit strategy is particularly important if an entrepreneur wishes to obtain seed money from a venture capital firm.  The VC wants to know the ultimate plan for the entrepreneur before investing large sums of money.  Thus, it is important that you develop a sound exit strategy plan for your business.  Though it may not be the ultimate result, it still gives an entrepreneur an alternate goal with the business.

Many entrepreneurs are currently worker bees in a “day job.”  Working for another boss is still the norm, but would-be entrepreneurs have the type of personality that desire to be their own boss.  However, should an entrepreneur quit a day job to completely invest into a new business?

It is common for many entrepreneurs to continue working a full time job while developing and growing their own business.  An entrepreneurial venture does not always provide an income at first, and with a mortgage and kids, the regular income from a day job is important to maintain. 

However, some entrepreneurs argue that without devoting a full time effort into growing their business, it will not get off the ground.  Particularly with a new business, you need to invest much time and effort into marketing, growing contacts, and making sales.  With no money to hire extra help, an entrepreneur must take charge of all the duties him or herself.  Sometimes the reward to exerting full effort in a business venture is the realization of a regular income much quicker than a part time endeavor.

The real question to whether an entrepreneur should or should not quit a day job depends fully on the circumstances of the individual.  Some things should be considered:

Do you have large financial obligations?

Many entrepreneurs are married with families and a mortgage, not to mention all the credit card bills that have financed much of his or her entrepreneurial efforts.  If this is the case, a regular income from a day job may be essential.

Are you looking for venture capital financing?

Sometimes a venture capital firm does not want to support a business when the entrepreneur is not working at it full time.  It may show that the entrepreneur is not confident in the success of the business.

However, with the help of VC financing, it is possible for the entrepreneur to devote full time into the startup business.  In any case, an entrepreneur should disclose the reasons to a venture capital firm for not quitting a day job.  People do understand that financial obligations must be met.

Do you have adequate savings?

For anyone quitting a regular full time job, it is usually recommended to have savings to support minimally three to six months of no income.  Many young entrepreneurs are able to drastically reduce their expenses while endeavoring to build a new business and can live off of little savings.  Another possibility for a confident investor is to cash in on stock options or other investments to help pay bills during the transition from full time job to full time entrepreneur.

Ultimately, the confident entrepreneur will find a way to succeed.  Whether it may be from living paycheck to paycheck while a business grows, or living cheaply while devoting full attention to a business venture, the entrepreneur who will succeed will be the one who weighs these options carefully.

Entrepreneurs who are starting a new business have a big challenge ahead.  It’s not enough to have a great business idea and a perceived market, but a keen entrepreneur will spend a great deal of time evaluating and sizing up the competition.  Having a clear picture of your competition’s business process and product marketing not only will help you develop your own, but also will help in setting your business apart if you are looking for venture capital financing.

Knowing your competition isn’t about squashing them.  The days of industrial revolution monopolies, where killing or buying out the competition in order to be the last business standing, are a thing of the past.  Today, knowing your competition is learning about their message, their product, and their business process so that you can develop a product that sets you apart.  Your business should be able to penetrate the market and work harmoniously along with the competition. 

Becoming familiar with competition not only helps you design your business process, but it also allows you to find ways to form potential partnerships with your competition.  Collaborating on joint ventures is a great way to expand customer base and revenues for both businesses.

Starting with Your Research

Your competition research should begin with the prominent business in your region or even on a national level that sells a product or service almost identical to yours.  Acquire their marketing materials like brochures, catalogs, and website content.  You could even make a purchase from the competition as a “mystery shopper” to gain intelligence on how their customer service functions and the quality of sales service. 

Find the Message

Once you’ve gathered as much data possible, take a look at how your competition delivers their message.  Do they use fancy graphics?  Flowery words?  What is it about the marketing material that attracts a customer to make a call or visit their store? 

If you have data from a number of different businesses, look at how many may have similar messages.  Some businesses try to compete simply by imitating their competition rather than trying to stand out.  Look at the messages from each and determine what works best and what is ineffective. 

Spin Your Own Message

Evaluate how your message can be delivered more efficiently and effectively.  Can you provide better customer service?  Does your product or service have features above and beyond what the competition sells?  Find ways to set yourself apart.  You don’t have to create material that is identical.  Rather, find ways to incorporate what works into your own message that will attract the same type of customer.

Chances are that your business idea is not completely unique.  You will have competition in some form.  If you are an entrepreneur who is looking to expand business with venture capital, you should perform a complete evaluation of your competition so that you know where you stand within your niche – which will allow you to demonstrate to venture capitalists how you will stand apart.

Most entrepreneurs have a very slim chance of obtaining the attention of a venture capital firm.  A VC firm may have up to 5,000 business plans sent to them every year.  In fact, only about 2% of the thousands of businesses who contact venture capitalists ever get a chance to interview and make a presentation.  With this in mind, how can your business be one of the few and the proud that VC firms will ask to present to them?

Getting the attention of VC’s is not as difficult as it may seem.  Just like book publishers want the next #1 bestseller or a movie studio wants the next blockbuster, the same holds true for venture capitalists.  A VC firm wants to lend out money and be part of the next big business idea.  The trick is organizing all your proverbial ducks in a row, having all the “T’s” crossed and “I’s” dotted, and of course, presenting a fabulous business idea.

Have a Stellar Team Lined Up

Your leadership team for your new business needs to have a stellar set of resumes.  Venture capital firms will want to back up a business with a seasoned team of leaders who are experienced and leaders of their respective industries.  It also helps to have leaders on your team who have successful experience in start-up or new businesses.  

Not everyone on your leadership team should have the same background.  Your business needs managers who can generate sales, manage finances, develop new ideas, and handle all the administration of a business.  Assemble a management team that can cover the spectrum of business needs.  Before they feel confident in lending money to your business, they need to feel confident that your leaders can handle the ongoing struggles of growing a new business.

Formulate Solid Financials

If a VC firm will notice your business, they need to see that your financial data is well thought out with solid backup to support projected revenues and expenses.  If your business can show through market research and other data that the demand will grow and revenues will increase, you’ve already secured their attention. 

Your financial data should also be presented so that it is easy to understand and view.  Spreadsheets are nice and organized, but don’t ignore the effectiveness of graphic design.  Use bar and pie graphs.  Make spreadsheet numbers easy to read.  Use bold headings, solid lines between data sets, and keep the matrix relatively small.  No one wants to decipher a chart with 20 or more lines. 

Demonstrate Your Passion

Venture capitalists want to back new businesses that will work and succeed.  If they can see that you and your team are committed and passionate about making your business succeed, they will want to speak to you.  Your passion for your new business will show in the care you take in forming your business plan, your market research and financial data, and the well thought out business idea and niche you will fill.  Show them you have the right assets, and the venture capitalists will give you their attention.

You’ve spent days, even weeks, writing, rewriting and firming up your business plan so that it will shine in the eyes of a venture capital firm.  Even though your executive summary is not the longest section of your business plan, it does warrant a great amount of your attention.  Remember, it is your executive summary that will attract the attention of the reader.

The executive summary is the opening section of your business plan, providing a high level view of your business idea and strategy.  It is what venture capitalists will read first.  Based upon the summary, most venture capitalist firms will decide if they want to know more about a company or simply toss the plan based upon this short introduction.  Subsequently, you should take special care in perfecting the details of your executive summary. 

The details of your executive summary should include:

Mission Statement – Summarize this statement into one or two very clear and succinct sentences.  Every word you use should be chosen carefully so that you present not only the business mission, but the emotion of succeeding in that mission.

Product or Service Overview – What is your business?  Provide a brief overview of what your product or service is and why customers will want to buy it.  Expand the overview to include how your product or service fills a particular niche.

Your Market – Who will buy your product or service?  Let your potential venture capitalist investor know exactly what market segment will be interested in your product or service and why they will buy yours over the competition.

Achievements to Date – If your business has been operating successfully for a period of time, or if you have successfully raised other startup capital, list these achievements in the executive summary as well.  A VC firm will like to know that you have taken initiative in obtaining other sources of capital and that the business has been steadily operating and growing up to this point.

The Obstacles – Every business needs to have a clear and realistic view of the obstacles it may encounter.  That means listing the competition and how you plan to succeed in joining the market segment.  You should also list other barriers to entering the business arena, such as technology patents or economies of scale.

Financial Summary – Briefly entice venture capitalists to read the full financial section.  Chose a few key graphs or charts that show your profit and revenue growth over time.

Management Team – Also briefly introduce the top management team (including yourself) who will be growing the business and making it succeed.  In a sentence or two, explain why they are the best choice to fill their position.

Your meeting with a venture capital firm depends on a clean and well written business plan.  The only way to get a VC firm to read your plan is to make sure they get past the initial business summary.  Spend the time to edit and re-edit your executive summary so that it is the highlight of the business plan. 

So much is written about how to secure the attention of a venture capital firm: how to write the perfect business plan, how to narrow a VC search, and how to assemble a winning team. However, not enough information exists on how an entrepreneur can dissuade a potential venture capital firm’s backing.  To successfully secure venture capital, make sure you do not commit any of the five surefire ways to lose a VC firm’s attention.

1.  Big Ego

Let’s face it: entrepreneurs have to be self confident to bring their dreams to fruition.  However, having plenty of confidence does not mean growing an ego the size of Texas.  Some entrepreneurs actually try to bully VC firms with their presentations, attempting to make the investors feel incompetent if they do not dole out the funds. 

It is important to dance the fine line between being confident and egotistical.  Letting a big ego rear its ugly head will surely signal to the venture capitalists that conflict could be in the future. 

2. Inflexibility

Along with an oversized ego is a trait of inflexibility.  VC firms are in the business of lending money and helping new and ongoing businesses succeed.  They have the experience to know what business processes may or may not work, and venture capitalists certainly have the right to recommend changes to companies to whom they lend money.  An entrepreneur who is unwilling to take direction or suggestion will likely not be on a VC roster.

3. Too Cerebral

It pays to be smart.  However, some entrepreneurs focus too much on the intelligence of their business plan theory and not enough on the practical side of business.  This sometimes happens to fresh MBA grads that hit the world with degree in hand, but lack the real-life experience to understand the practicality of market theories.   Your credentials may all look good on paper, but venture capitalists want to know that an entrepreneur has practical experience and a realistic and flexible outlook.

4. Bad Lineup

Your management team is the group of people who will lead the business to success.  They must each have the resume to instill confidence with a venture capital firm who may want to fund your business. 

VC firms have revealed that one major faux pas entrepreneurs commit is creating a HR roster filled with family and friends who lack the experience necessary to build a company from the ground up.  Be sure that your management team lineup consists of experts in their field, and keep in mind that experience with start-up companies is a great bonus.

5. Too Shy

An entrepreneur with a great business idea will most likely not succeed if he or she cannot effectively promote the idea.  Great entrepreneurs have stellar communication skills and can speak directly to a venture capital group about how their business idea will succeed.  If you’re the shy type who crumbles under pressure, you might want to hire a PR spokesperson as part of your management team.

Successful entrepreneurs must have a shopping cart full of qualities needed to convince a venture capital firm of their potential success.  It’s wise to know your strengths and weaknesses – and a wise entrepreneur will know when and how to make up for weaknesses in front of a VC meeting. 

How much venture capital funding does your business idea need?  If you need between $500,000 and $5,000,000 in funding, then venture capital may not be an option.  According to the Dow Jones, there are very few venture capital firms that are interested in investing in companies that need less than $5,000,000 in funding because they feel the returns will not be sufficient. 

Subsequently, what should an entrepreneur with a good idea and solid business plan do?  If you find that your idea needs less than $5 million in venture capital, then you may be looking in the wrong place.  The best funding source for you may exist in angel investors. 

Why Angel Investors May be Better Suited

Filling the gap between entrepreneurs and venture capital are angel groups.  Angel investment groups work differently than venture funds, and they may be the ideal source for your business idea.  They are typically backed by dozens to hundreds of wealthy individuals who want to pool their funds together to support the next “big” idea.  With nearly 170 angel investor groups in America, you can find one whose industry specialization suits your endeavors. 

In addition, angel investors tend to want to be more “hands on” with the companies in whom they invest – meaning you benefit from their industry or entrepreneurial expertise. 

Angel Investors in the Recession

Considering that angel groups are made up of individual investors – many whose Wall Street portfolio has been impacted by the 2008 market – how does this translate into funding during a recession? 

While there have been changes in angel investing, there are some trends that make it better for the determined entrepreneur.  With the recession, there are fewer companies entering into the marketplace – which results in less competition both for funding and industry penetration.  In addition, considering the high unemployment rate, start-ups can now find and retain better personnel and teams. 

Angel investors understand these dynamics and advantages.   In a time where interest rates have hit bottom, they are looking for investments that can make their money work for them – and your business idea may just be the investment vehicle they are seeking.     

Accessing Angel Investors

Generally speaking, angel investors are easier to access and contact than the guarded venture capital firms.  These angel investment groups are typically bombarded with much fewer business plans and proposals than the capital funds – meaning that they have more time to review your idea.  An angel investment firm may receive 500 business plans annually, which is a stark contrast to the 5,000 proposals VC funds review. 

Start your research by reviewing angel investment groups and understanding their focus, whether it is industry-based or geographical.  Review their websites for submission information, or consider finding their accounts via LinkedIn.  Sometimes, it’s as easy as two clicks and a phone call before you find yourself sitting in front of angel investors. 

The recent downturn of the American economy and credit crunch has affected much of the finance and investment industry – and venture capitalists have also been caught in the low tide.  Even though money is still being invested by venture capitalists, you should take note of potential policy changes that may influence your funding. 

Halted IPO Strategies

Initial public offerings on the stock markets came to a virtual standstill by the second quarter of 2008, and the fourth quarter did not witness a single venture-backed IPO.   In fact, according to the Dow Jones VentureSource and National Venture Capital Association polls, the number of IPOs decreased more than 90% between 2007 and 2008. 

With this in mind, many venture capital firms are looking more at startup businesses that do not have an IPO exit strategy, or those who will delay plans for an IPO.  Instead, they are investing more in firms that plan to remain a private business or corporation, or one with high acquisition and takeover potential.  

An IPO does not need to be discounted altogether.  Many startup companies have fared very well with a delayed IPO after a recession.  Google went public in 2004 after the economic recession that began in 2001.  The delay resulted in a big success for the search engine giant.

Lower Amounts Invested

VC firms are also tightening their individual lending budgets.  Rather than lending large amounts of dollars to fewer companies, many venture capital firms are reducing their maximum lending amounts and investing in a more diverse base of startups.  However, this trend means a potential VC fund recipient may expect to receive considerably less than they need or expected from a venture capital firm.  Entrepreneurs who wish to receive VC funding will have to either tighten their belts or search for additional funding elsewhere.

Higher Interest Rates

Be prepared to pay higher interest rates to venture capitalists due to the credit crunch.  The reduction of cash that banks can lend between themselves results in higher interest rates all around.  Investors who are part of venture capital firms will want a higher rate of return since the security of banks lending is reduced.  That translates into a higher payback to venture capitalists for funds invested in your business.

More Competition

Along with the credit crunch and the lesser amounts of bank loans, there will likely be a greater amount of competition for VC funding.  Bank loans are a staple of business financing.  Without this source of financing, many entrepreneurs will be vying for the attention of venture capitalists.  Be prepared to have a solid business plan and projected financials if you are looking for VC funding.

Entrepreneurs with great business ideas need not fret excessively about how they will obtain financing for their new business.  There still is venture capital money for quality ideas.  However, entrepreneurs will need to take additional care to prepare tighter budgets and start with potentially less capital than anticipated.   In order to reach the attention of venture capitalists through greater competition, entrepreneurs will need to prepare solid business plans that show growth and sustainability.

Countless entrepreneurs have said, “I have an idea that will change the world!”  If we all had a dime for every time we’ve heard that phrase, we would all be the next entrepreneur millionaire.  For every 100 entrepreneurs who believe they have thought of a revolutionary business idea, one has already put it into practice and is enjoying a corner on the market or a growing stream of income. 

If you plan to open an entrepreneurial business and obtain venture capitalist (VC) funding, you need a business idea that is fresh.  However, remember that your idea doesn’t necessarily need to be new; it could be a fresh look on an old idea or a fresh perspective on a current business process.

Before you start shopping for VC funding, take a close look at your business idea.  Make sure it has at least one of the qualities below.  If it doesn’t, rethink your entrepreneurial idea so that you can show venture capitalists that your business is ready to fill a needed niche.

See an Opportunity

Many entrepreneurial ideas come from witnessing an opportunity that no one has yet met.  Over ten years ago, Julie Clark could not find materials that she could use to teach her young child about music, art, and humanities.  Subsequently, she created her own video and materials using her basement and a home computer.  Today Baby Einstein is owned by the Walt Disney Company and includes Little Einstein and a host of educational videos and resources for children to learn about the arts.

Sometimes we look for opportunity and sometimes it strikes you instantly.  When you come across a new opportunity for an entrepreneurial enterprise, you already have a great start for success.

Replace or Improve an Existing Idea

Sometimes entrepreneurial success comes from improving upon a current product.  Most everyone is familiar with Soichiro Honda from Japan who came up with an innovative new piston design.  Though his designs were scoffed at first, he soon became a world leader in motorcycle engine manufacturing.  His company continued developing innovative technology with gas-saving automobiles.

Innovative improvements that can replace or improve upon a current product are another road to becoming an entrepreneurial success.  Successful business ideas need to be unique and find a way to make wide-spread changes for the better.

Raise the Stakes

Dominos Pizza once had an ingenious idea to obtain more business by promising to deliver a pizza, fresh and hot, to your door.  This was at a time when people still went to pizza restaurants.  Can you name a pizza place in your town that does not deliver today?  Clearly, Dominos revolutionized the industry. 

By raising the stakes, you can offer better, faster, or more desirable service or products.  All it takes is an innovative idea that takes the best and makes it better, and thus, in more demand from customers.

If you think you have a great business idea, think again.  Your business idea may have the nugget for a great and innovative product or service, but you need to research and refine your idea so that it is unique and fills a niche.  The most successful entrepreneurs will have that shiny, innovative idea that makes life better or easier for a lot of people.