How do VC firms decide to provide start up financing to one company and not another?  There is no single element that sets a startup company apart, but usually a combination of factors.  If you are looking for start up financing, here are five important ways you can position your company in front of VC firms to get a better chance at “yes.”

1. Have an All-Star Management Team

VC firms are interested in providing start up financing to new companies with experienced management.  Too often a young entrepreneur comes along with a great idea, but no experience in the industry or marketplace.  A smart entrepreneur will surround himself with experienced managers in all arenas, including sales and marketing, accounting and finance, HR, product development, and administration.  And better yet, VC firms like to see management team members who have previously been a part of a successful start up company.

2. Have a Quality Product

A VC firm will more likely invest in a startup company with a new, unique, and strong product idea.  Innovation is the key.  However, your idea doesn’t have to be a product.  A service idea with ingenuity and quality benefits can carry weight with VC firms as well.  If a VC firm believes your product or service will sell, you’re more likely to gain their interest.

3. Appeal to a Large Market

One thing that entrepreneurs must remember is that VC firms want to invest in companies with very large earnings potential.  A startup company with a great idea but only a niche market may only have potential for a few million in earnings each year.  If you want VC funding, expect that your product will eventually earn hundreds of millions or even billions on the market.

4. Have Growth Potential

As stated, VC firms like companies with large earnings potential.  Your startup may be in development and be small.  However, you will need to have the ability to easily expand when the market calls for growth.  Know and state your company’s growth strategy.

5. Large Return for VC Firms

VC firms don’t invest money to get 8% to 12% returns.  They could do that with the stock market or real estate.  Instead, VC firms invest in startup companies to get larger ROI, and certainly the risk-to-reward ratio applies to venture capital investments.  This translates into venture capital firms holding an equity position up to half the company’s value and even large stock options in an IPO.  If you want VC funding, be prepared to offer large returns for the investment you receive.

Tags: angel investors, business capital, find capital, startup funding, vc, venture capital

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