Entrepreneurs are inherently risk takers, ones who play the roulette of the risk-to-reward ratio audaciously.   While venture capitalists are known to indulge in “high risk” investments, their risk tolerance may not mimic the adventurous entrepreneur. 

 

When an entrepreneur approaches a venture capital firm with a proposal for financing, the VC must determine whether the risk is too great for the investment.   In the eyes of the venture capital firm, there are three sure signs that a proposal is not worth the risk. 

 

1. An Unfinished or Sloppy Business Plan

 

A VC firm will make a first assessment of a proposal based on the submission of a business plan.  Sending in a generic, sloppy, or unfinished business plan will not bode well for your funding efforts. 

 

Business plan software is readily available at retail stores and even downloadable from the internet.  Templates are also plentiful if an entrepreneur wants to use one as a blueprint.  However, so many entrepreneurs fail to take a software-produced business plan and write in the organic and specific elements that are particular to his or her business.  These plans come off looking generic and unenthusiastic. 

 

Instead, make sure you take the care to personally write, or hire a writer, to compose the necessary sections of your business plan that need an individual touch.  Before meeting with a venture capital firm, make sure your business plan is perfect – free of spelling errors or mistakes. 

 

2. Asking for Wrong Amounts

 

Many entrepreneurs do not even realize what stage is applicable to their business.  An entrepreneur with a great idea but with no feasibility studies or market research may think he’s ready for stage-one production and market penetration.  He’ll ask for a $5 million investment from a VC firm.  Then he hears the laughter as they shut the door behind him.

 

Others may have an existing business ready for expansion, but are asking for too little for an expansion program.  Knowing the stage that your business is in and how much you need to reach the next level is incredibly important when approaching a VC group.  So many businesses fail because they did not have enough working capital.  Though asking for too much is not recommended, asking for slightly more than you think you need is a good idea.

 

3. Too Much Debt or Too Many Investors

 

Some entrepreneurs start out their business idea on their own with the help of family, friends, and bank loans.  At this point, they are quite proud of the fact that they did not need VC funding for start-up costs.  However, when they are ready to get VC backing for market introduction or expansion, many of these entrepreneurs will face rejection because the companies are already too overloaded with debt.

 

Another potential problem is that an entrepreneur acquires too many start-up investors to get the business off the ground and finds that there is no way to satisfy everyone on how profits are to be distributed.  A venture capital firm that finds an entrepreneurial business with too many investors is likely to move onto the next application.

 

Don’t make the mistakes that entrepreneurs have made so many times in the past.  Learn from the mistakes and get your business ready to present as a prime candidate to a VC firm.

 

 

 

 

 

 

Tags: angel investors, Find funding, find venture capital, start up capital, start up funding, vc funding, venture capital, Venture Capitalist

This entry was posted on Wednesday, March 4th, 2009 at 2:33 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.