Raising the large amounts of capital needed to grow a new technology company is one of the hardest challenges faced by entrepreneurs. Though financing can be acquired through angel investors, traditional bank loans, and other private investors, the large amounts of capital and resources needed for fast-paced growth are usually only found among venture capital groups.
What can you do to increase your chances of VC funding? Here are some questions to ask of yourself and your business to be sure you are ready to approach and present to VC firms.
1. Do I Need VC Funding Yet?
Many startup companies are not yet ready for VC funding. Though there are small numbers of VC firms who provide seed investments in smaller startups, if you need first round capital financing, you may want to hold off on approaching VC firms until your company is past the market research and product testing phase.
Most new companies go through three different sources of raising capital, which includes seed money, 2nd round, and 3rd round financing. Seed capital can be found among angel investors and other private investors.
2. Do I Have the Right Leadership Team?
VC firms are hard-nosed when it comes to investing large amounts of capital in new and high-growth businesses. They want experienced leadership in the company that will lead it to successful profits and possible IPO status. Be sure you have the best and most experienced management team you can assemble before you approach venture capital firms.
3. Have I Studied My Competition?
Many entrepreneurs do not pay enough attention to the existing and potential competition in the industry or niche in which they want to enter. However, you can be sure that venture capitalists will want to know all about your competition and how you plan to beat them, or at least gain a substantial market share to become profitable. And that leads to asking yourself…
4. Have I Studied My Market?
A great idea goes nowhere without a market to buy it. VC firms want to know that your business idea fills a niche within an established industry or market. Many entrepreneurs fail to completely and fully research their market, especially in terms of a national or global scale expected of VC portfolio companies.
5. Have I Fully Revised My Executive Summary?
Your business plan is the document that will get your in front of a VC firm. However, in order for venture capitalists to ask for your business plan, they will usually look first at your executive summary, which is a short version of your entire plan. A well-written and many-times-revised executive summary has a better chance of getting the attention of VC directors. Write and re-write your executive summary until it reads smoothly, is succinct, and provides the intriguing details of your business.
Entrepreneurs are often chomping at the proverbial bit to get in front of venture capitalists to ask for large amounts of capital. However, the ones who are successful and receive a VC firm’s consideration will be the cool-headed business owners who ask the right questions before approaching venture capitalists.