With the list of US venture capitalists growing year by year, it can seem like an impossible task to find the right ones that are a potential match for your business. Acquiring venture capital requires a tremendous volume of patience, research, and effort before you finally arrive with money in the bank from a granting VC firm.
How do you narrow the prospective list of venture capital firms so that you can focus your business idea presentation most effectively? There are many ways to narrow criteria to find a viable VC list. Here are the most commonly used focus techniques:
1. Match Criteria
Each VC firm will publish investment criteria that exposes the firm’s desire for certain types of business, tolerance for risk, and average amounts of investment in each business they choose. If you are looking for $1 or $2 million for growth and expansion, don’t approach a VC firm that only disburses $5 million or more to already established businesses.
By looking at a venture capital firm’s criteria, you can narrow your potential list from hundreds to perhaps a couple of dozen choices. Read these criteria carefully, and you will have a viable list of potential VC firms.
2. Sector Preference
Many venture capital firms prefer to invest in certain industries, such as software or consumer electronics technology. Know your potential VC’s preference for their portfolio investments. Don’t waste your and their valuable time by submitting a business plan for your fashion design business to VC preferring software companies.
3. Stage Preference
Is your business a startup? Are you an established business now looking to grow nationally? Many VC firms will state what stage of business they prefer to invest in, whether it is startup, seed capital, or expansion. Match your stage of business with a potential VC’s preference.
4. Avoid Conflicts
When you have a good and narrow list of potential VC firms, look at each carefully and check for potential conflicts with other companies that the VC has in their investment portfolio. A VC firm will most likely not want to invest in your company if you are a competitor to one of their portfolio holdings.
5. Narrow a Location
Most VC firms like to invest in companies that are local to them. Locally could mean the same metropolitan area, state, or region. Find out where your potential VC firm prefers to invest its funds and approach the ones in your “local” area.
There is no harm in asking a firm that has declined your business for other venture capital firm suggestions. VC firms are very familiar with the venture capital community and may know other firms that may be a better match. Always ask politely and be genuine with your request. There is usually no reason that members of a VC firm would not want to help your business if you are truly passionate about succeeding.