It is essential for venture capital firms to believe that your small or startup business is hitting the right and size of market.  While a management team or new product can be created, a market opportunity cannot, as it must exist.  And if a sizable market does exist, then venture capital firms start salivating.

However, don’t get over-zealous and lay down unrealistic market opportunities. Venture capital firms want to see a sizable market, but it must be realistic.

Avoid Overstating Your Intended Market

It is very tempting to say you are entering a “300-billion a year” software industry. And simply stating that even penetrating 1/1000^th of that market will lead to riches. However, that is far from the truth. You must be clear to venture capital firms that within that market, Microsoft applications takes up a great percentage. And after bypassing all the gaming software, financial software, and other popular consumer software, your little database program aimed at the bartending industry is only a very small portion of the overall “software industry.”

Use Published Facts and Figures Pertinent to the Market

Let your venture capital investors know the particulars of your intended market and industry. Don’t be afraid to use statistical reports from reputable research companies and from name brand industry leaders such as the Dow Jones, Forbes, Wall Street Journal, or Bloomberg.

These kinds of business or industry reports can give you leveraged data to help persuade venture capital firms that your market is growing. Cite growth percentages and emphasize actual market numbers. This will help give credibility to your intended market segment.

Identify Changes and Trends

You may be able to persuade venture capital firms that a particular market is trending. By using the above strategy of published statistics and reports, you can use your power of analysis to study trends and make your own educated and professional market projections. And if you have created new business ideas to take advantage of early trends, you could score with venture capital financing.

No matter how good (or improvable) your new business ideas are, you must convince venture capital firms that a market is or will be in place. Use targeted market segments, recent reports, and your own valuable trend identification to help VC firms get the picture of your business success.

Entrepreneurs looking for venture funding for their small business or start up are often approaching venture capital firms. And there is no wonder - venture capital firms can offer a staggering amount of money for expansion, marketing, and even IPO preparation.

Venture capital firms are often contacted first through an introduction letter and an executive summary. If the venture capital firm wants to know more, they will usually ask to see the full business plan and set up a meeting if the plan is attractive.

However, getting that first executive summary past the initial contact stage is never easy. Entrepreneurs should be advised to pay close attention and polish the executive summary to the point that it gleams.  

What are the typical mistakes that can cost the entrepreneur any further meeting with the venture capital?

An Unclear Executive Summary

Both venture capital firms and entrepreneurs agree that the biggest mistake on an executive summary is an unclear one. Many executive summaries are verbose, lengthy, and unfocused.

A venture capital wants a clear understanding of the new startup company, and clarity can be presented in a brief fashion. Entrepreneurs must succinctly articulate their company’s purpose and mission in a few sentences, or risk losing a VC firm immediately.

Too Long

Many executive summaries ramble on through paragraph after paragraph of mental regurgitation. The executive summary is not meant to be a detailed document. By its name alone, you can figure that it should be kept as a brief and concise summary and expanded in the full body of your business plan.

Unrealistic Valuation and Financial Projections

It is easy to imagine a startup company being successful and toss in desired growth statistics to match an entrepreneur’s imagination. However, to acquire venture funding, you must be realistic in your current business valuation and financial projections.

You will lose credibility with venture capital firms with numbers that are too high on expectations, or even too low on current cash needs.

Lack of Management Discussion

Too many entrepreneurs and beginning business owners talk too much about their product, and not enough about their own management team. It may surprise a lot of entrepreneurs, but venture capital firms place a high amount of emphasis on the management team, sometimes over the product itself, as to whether a startup company will succeed.

Your executive summary is the first point of contact with venture capital firms. Make it count. Avoid these costly and critical mistakes and polish your summary so that VCs will be clamoring to learn more.