Entrepreneurs are usually impatient about securing venture capital funding.  They have a great idea and want it to get started NOW. However, it is always best to step back and get yourself ready for the venture capital firm hunt.  Asking these important questions can save you significant time in finding the right VC firm and getting a “yes” answer.

How Much Money Do I Need?

This is an important question to know before you approach a VC firm.  If you have performed your market research and product development research, then you should have a good idea how big your potential market is and how you need to get your product ready for it. 

Movie producers don’t just start making a motion picture at a whim.  They carefully prepare a budget for every step of the way, including pre-production, filming, and post-production.  They know exactly how much a movie will cost to produce.  The same holds true for your start up.  Know how much start up funding you will need to reach your targeted market.

Have I Written My Executive Summary Dozens of Times?

An executive summary is the most important portion of your business plan.  It is the summarized whole of the plan that VC firms will read first to find out whether they want to read more.  Make sure you send your executive summary past the eyes of many advisors.  Have business contacts read it.  Have your lawyer and accountant read it.  Make changes each time with their suggested input.

To Whom Should I Send my Executive Summary?

Rather than just submitting your executive summary to every venture capital firm that shows up on your radar, you need to have a coordinated effort.  A VC firm that specializes in your type of product or industry will more likely read your executive summary and contact you for more information. 

Should I Seek VC Funding from another Region?

In most cases, VC firms are strict about their geographical investment borders.  VC firms tend to invest more locally or regionally for many reasons, including having close contact with their investment portfolio companies. 

However, you can still succeed in getting VC funding from an out-of-state VC firm.  Check every VC firm carefully for their investing guidelines.  Find ones who are open to great investment opportunities outside their normal geographical range.  If your product and company are a good fit, then an out-of-state VC firm should at least give you consideration.

The ability to successfully obtain venture capital funding depends a great deal on the management team assembled in a startup company. Entrepreneurs may have big dreams and big ideas, but no one attempts a large business venture alone. That is why it is so important to empower your management team if you want to obtain VC funding.

The Value of Management for Venture Capitalists

One of the most important qualities a VC firm looks for in a startup business is the management team. The VC firm wants to know that the team has quality leaders who are experienced in their field of expertise. Their experience will become invaluable in making decisions for the startup company as it meets challenges, especially if management team members have previously gone through the experience of a startup company.

However, what good is expert management team advice if an entrepreneur doesn’t empower them to make decisions? Many times an entrepreneur has assembled a powerful management team for the sake of obtaining VC financing. But ego and the allure of power prevented them from taking valuable advice and resulted in poor decisions for the company.

Empowering Your Management Team

What can you do to empower your management team and be in a better position for VC funding?

• Trust – Learn to trust the experience of your management team. You will have a better chance at VC funding if you trust your team to pull from their education and experience.

• Ask – Don’t be afraid to ask your management team for advice and help. Entrepreneurs are the leaders of new startup companies. However, a good leader knows when to take advice from a qualified team member.

• Encourage – Don’t forget that even experienced managers need encouragement too. Learn to encourage their input, and reward managers for great ideas and winning decisions.

• Provide Resources – A manager who has the resources he or she needs is more likely to help your company get VC financing. Make sure you provide money, technology, and even human resources that will help a manager help your company look great for VC firms.

It takes a village of qualified people from a wide angle of fields to make a startup company work. VC firms know this fact, and your funding depends on a company having the right management team. Be sure you empower your team to get the highest results.

Many entrepreneurs want to start a new business and think that venture capital funding is the only way to get the capital needed.  Why?  Simply because the term “venture capital” is tossed around so frequently.  It is associated with capital for new companies.  The thought is, “if you’re venturing out on a new business, venture capital financing is the way to go.”

Although this is partially true, there is much more involved with obtaining startup financing from venture capital firms.  Entrepreneurs must know that VC firms have specific guidelines for their portfolio investment companies, and many of those guidelines are universal.  If you are wondering whether your start up business is a good candidate for VC funding, here are a few good ways to know:

You’ll Be Serving a Large Market

You may have heard the term, “find your niche.”  Niche businesses are those that find a particular market or customer segment and fill a need that is not already there.  Unfortunately for these types of businesses, they may be successful as a niche business, but not a good candidate for VC funding.  Why?  They simply will not pull the revenue numbers expected of a VC funded business. 

Successful niche companies are sure to earn millions.  However, VC funded start ups are expected to eventually earn billions.  Thus, if you want VC start up funding, your new business must serve the needs of the masses.

You Need a Large Amount of Capital

Many new startup companies need only a relatively small amount of financing to get off the ground.  A few hundred thousand dollars or even a million or two will do the job adequately.  Unfortunately, venture capital firms are more interested in investments that require millions, and sometimes tens of millions, in capital needs.  A $500,000 investment simply will not give the VC firm the return it requires.

You Need Many Rounds of Financing

VC firms are looking to invest in startup companies from the ground up, which means potentially many rounds of financing.  For instance, a startup company may require seed financing and then many subsequent stages of funding until the business is ready to even introduce a product to market.  If your company does not need heavy market analysis, product development, and market testing, you may not be a good candidate for VC funding.

Entrepreneurs need to know where the best places to look for startup capital.  If you are a wise entrepreneur, you will carefully evaluate your new business to see if it is a good fit for VC funding.  If not, you would be best to focus your efforts on other sources.