New businesses trying to make a jump into the big leagues need the capital necessary to expand and grow. Finding venture capital is the choice for many smaller businesses, with the funding providing both the capital and the guidance for business expansion.

Of course, venture capital firms are extremely picky when it comes to their choices in whom to invest. In a few instances, businesses are awarded venture capital because they are in the right place at the right time. However, most of the time, it is only the most prepared businesses with the right ideas who are successful at finding venture capital.

How do you know if your business is ready for VC funding? Here are three sure signs that venture capital firms may take a look.

1. Organizational Structure

First, venture capital firms are succinctly aware that only businesses who are absolutely solid in their organizational structure will survive. A business organization must consist of experienced management professionals who are all dedicated and enthusiastic about the business product and mission.

An enthusiastic entrepreneur can be the catalyst that flings a great business idea toward success. However, a single leader is not enough. A venture capital firm will only look at businesses that have the right leadership in all areas of the organization, including marketing, sales, production, finance, administration, and overall CEO leadership.

2. Operational Experience

Keep in mind that venture capital firms will likely choose businesses that have some business experience. Only a small number of venture capital dollars go to seed funding. Most venture capital dollars will go to early stage, expansion, or later stage businesses.

You must prove to a venture capital investor that your business is not only set to grow or expand, but that it has the track record to prove the business model.

3. All Documents Prepared

The last sure sign that your company is ready for VC funding is having all the proverbial ducks in a row. All necessary documents must be prepared in excruciating detail. These documents should include:

- Business Plan - Give a complete overview of the business, including mission, product/service detail, leadership details, marketing plan, and pro forma financials.

- Business Model – This is the overall blueprint of how the company will be run. This document shows operational details such as production plans, marketing strategies, financing, etc.

- Business Proposal – This is a brief document that proposes why the business needs venture capital and how it will spend the cash.

- Financial Projections - These are detailed and researched financial figures that show where income is made, and where money is spent, with a goal of increasing net income year by year.

When you have all your t’s crossed and your i’s dotted, then you’ve just worked you way closer to venture capital funding.

There is no disputing the importance of a well-written business plan, especially if a business is looking for start up capital. Venture capital firms are the ultimate judge of a refined business plan.

However, not all new businesses are ready to present their business plan to any investor, much less a venture capital firm. It is often the case where business plans are unfinished, unedited, and even comical in their hype and unrealistic data.

So how do you know if your business plan has the credibility to go before the judges of venture capital? Here are a few tips:

Pinpoint the Market

There is no venture capital firm in the world who will agree to provide start up capital to a business who states that the world is their oyster and there is no limit to the market. A product or service must have a specific and pinpointed target market, and it must be proven in the business plan.

A business looking for venture capital funding must do the research using past experiences and relevant market studies. The data must be compelling and prove to venture capital executives that the market exists and that the potential market will buy the product.

Highlighting Barriers and Competition

A credible business plan will not shy away from bold and direct statements about competitive businesses and barriers to market. Competition is absolute, and all new businesses have unforeseen problems when making their mark on the market. Venture capital firms will appreciate those business plans that have taken the time to see the unforeseen – and has the courage to disclose them.

Realistic Financial Figures

It is too easy to work up spreadsheets with numbers that appear to be reasonable. Using simple percentage increases based on industry averages is not good enough, however. If a business does not have a prior income history, it is necessary to forecast figures based on research.

Be sure that your business plan presents realistic income figures based on market research and appropriate similar business modeling.

Promote the Leadership Team

Venture capital firms will be more drawn to a business plan with an all-star leadership team. An entrepreneur with a vision is a nice start, but a business plan highlighting a management team with previous and successful start up experience, or at least a great track record in the same industry, is a must for obtaining start up capital.

A startup business has an automatic disadvantage because it has no prior financial history. Convincing an angel investor or venture capital to see the promise in an unproven business or financial model can be challenging.

However, there are proven strategies that can help an entrepreneur convince potential investors of a new business idea and how it will be a financial success.

Operational Blueprint

First, a detailed business model can help secure startup funding by proving to investors that you have a solid blueprint from which to base your operations. The business model provides detailed accounts of how the business functions are divided between the managers, where the money comes from, how it is spent, and how the product or service will be sold.

Identify Risks

Any investor offering startup funding will want to know the risks involved with the new business idea. In addition, they will also want to know that the business owner is aware of the risks as well. Any entrepreneur who claims there will be no competition or that the new business idea is a sure winner with little or no risk is truly out of touch.

Multiple Stratagems

There is not just a single road to a new business idea’s success. Angel investors or venture capital firms will want to see alternate exploration of your business model and how your new business idea will work. For instance, you might lay out several pricing structure options and how each one affects gross and net income. Or you may even discuss how different amounts of start up funding will be used in several possible increments. Multiple marketing scenarios will also be a useful tool to explain how your new business ideas get from concept to production and into the hands of customers.

Persuasive Presentation Tool

Ultimately, your detailed business model is an essential part of the overall presentation to start up funding firms. While venture capital firms and angel investors like a good new business idea, the idea itself is not enough to seal the deal. The presentation of how the company will be run, how products are produced, how products or services are sold, and how the bottom line is affected by sound financial projections are what convinces investors to lend money.

The business model is not just a good idea to have as a business tool; it is essential for convincing investors about your new business idea. Take the time to develop a thorough and detailed business model, and you will have a much better chance of sealing the deal.

The success of an entrepreneur starting a new business venture depends heavily on his or her networking skills. The keen ability to acquire contacts who later may become vendors, customers, clients, correspondents, referrals, employees, associates, business partners, or even venture funding investors is essential to the success of the new fledgling company.

However, most entrepreneurs new to the business startup world take for granted the ability to network their way to build relationships with venture capital companies.

Venture Capital Networking Sources

There are plenty of resources available to business owners to help them in their venture capital networking journey. Here are just a few.

Entrepreneur groups – Local entrepreneur groups are found in most bigger cities. These groups are specifically designed to support local business owners in their journey to building a successful business. You can bet you’ll find others who experienced the same venture capital search as you.

Industry networking groups – Oftentimes, you as an entrepreneur can look within your own industry to find the best suited venture capital option. Use association groups, newsletters, conferences, and trade shows to discuss your venture funding needs and get leads to VC firms others have used. Popular industries in areas like technology, medical and health, biotechnology, etc, have plenty of networking group possibilities.

Internet entrepreneur groups – Online you’ll find a plethora of resources for new entrepreneurs. A few narrow searches can result in websites aimed at helping business owners find databases of venture capital firms, along with articles and guides to getting VC funding and more.

Don’t Quit Networking After Venture Funding

A mistake many new small business owners experience is limiting their venture capital funding to a single venture funding deal. If a new business is lucky enough to land venture capital acceptance, that is usually not the last venture funding they will receive.

Rare is the case where a new business is funded by a single venture capital firm. Rather, it is imperative they the small business use their current VC firm to network with additional venture capital companies.

An entrepreneur with a young business will likely look at two or three venture capital firms, or even more depending on the size of business and the industry, to meet necessary financing needs to move on to the next level.

A new business looking for startup financing is likely to have the best chance approaching angel investors rather than venture capital. Angel investors help provide seed money for businesses not yet in the “prime time” of their operations, meaning they are still in product development and have not yet brought their product or service to market.

However, obtaining start up financing from angel investors is still not an easy task. A young business must convince the investor that their new business idea is market-worthy and potentially profitable.

Thankfully, a young business with these three business cornerstones in their bag will find that gaining the attention of angel investors will be much easier.

A Valid Idea

Not every new business idea is worthy of startup funding. Some big new ideas start out quick out of the gate and are good concepts. However, after research and analysis, the idea may fizzle. By contrast, even a mediocre initial idea can become a home run with the right finessing of the concept and market strategy.

To gain attention of angel investors, your business idea must be past any concept stage. You must present the idea with plenty of solid background about how it matches a market need and show research that customers are interested in buying.

A Solid Presentation

A great business idea cannot get very far without a convincing pitch and presentation to a potential angel. How you sell your story to an angel investor is what will set you apart from the other choices.

A solid presentation will include confidence in the presenter, details behind the scenes of management, and a compelling vision packaged into about 15 to 20 minutes. Also be sure to not only practice your pitch, but have answers ready for any potential question that an investor may ask.

Rational Data

The final lynch pin in securing startup funding from angel investors is having rational and reasonable data to back up financial results and projections.

Remember that angel investors are going to choose to invest in businesses with valid data backed up by research. Any “concepts” and “what ifs” do not work in instilling the confidence to send you investing dollars. Be sure that even if you have no previous transaction or income history, you perform the necessary market research and business modeling to prepare a rational projection of sales, income, and expenses.

Venture capital firms are notorious about choosing only select candidates for their funding. Out of hundreds or even thousands of potential candidates, only a few are selected as investment opportunities. However, not only do venture capital firms offer money to help a new business get up to speed and meet their full potential, but they are also there to act in an advisory capacity as well.

So what other roles to venture capital firms play in a developing business? Here are just a few.

General Business Strategy Advice

Venture capital firms are in the business of helping other businesses succeed. In doing so, they have acquired a great deal of experience and wisdom along the way.

Do not expect a VC firm to hang back and be a “silent partner.” Instead, expect a venture capital firm to offer plenty of advice in how a business should proceed with their strategies and offer new strategies in addition.

Develop a Financing Plan

Obtaining venture capital is similar to getting a loan. While banks and other types of investors will usually set up a regular payment plan and expect a business to stick to it, venture capital will clearly outline how they expect to be repaid for their monetary contribution.

It is traditional to expect that venture capital firms may not expect any type of repayment right away. However, instead expect them to become equitable owners in the company, and design their “exit plan” with certain amount of preferred shares for an IPO, for instance.

Refine the Business Plan

A business seeking venture capital will get nowhere without a business plan. But once a venture capital firm decides to back a new business, they will likely offer advice on how a business plan can improve and be refined even more.

Marketing Advice and Strategies

A new business may have a super star lineup in their management team. However, there is always additional benefit from venture capital firms with national and even international marketing savvy. Expect that a venture capital firm will provide valuable marketing strategies for newer businesses and products.

Develop Contingencies

New businesses are likely to fail. Even a large percentage of venture capital backed businesses will fail. Venture capital firms are accustomed to this risk and can also provide additional and valuable advice and plans for contingencies when a business does not come together as planned.

New businesses trying to get a foothold in their industry can do extremely well with venture capital. However, financing is only a small portion of the role venture capital firms play. If you secure VC funding, expect an experienced venture capital firm to become a valuable, active business partner in your new endeavor.

Any entrepreneur with a new business idea believes their idea has merit and is a gem of potential. However, the hard part of the journey to business success is convincing others that the idea is a good one. Not only does the idea need to be sold on customers, but also to business partners like venture capital firms.

Obtaining start up capital for a new business idea is one of the first priority goals to simply get the business off the ground and rolling at full speed. Bank loans and family investors can help, but an entrepreneur who can finance his or her own way is extremely rare. Venture capital funding can infuse not only money, but valuable strategy advice for success.

Convincing a venture capital firm to fund your new business is a tough task indeed. VC firms are highly selective, but the right strategy to help sell your business idea will give you an edge in convincing those with the money to lend some to you. Here are a few ideas:

Business Plan

Without a doubt, a focused and refined business plan is essential to get the attention of venture capital firms. The business plan is a concise document that is the blueprint of how a business will move forward and succeed. It includes management profiles, sound marketing strategies, and reasonable financial projections.

Business Proposal

Selling a new business idea to venture capital firms requires not just a solid business plan, but also a brief business proposal. The business proposal is also a concise document that acts as the initial “pitch” to a potential venture capital firm.

The business proposal must present an educated request for capital based on sound research, experience, and prior studies. The proposal absolutely cannot be a request for money simply because your business idea is the “next best thing”. A venture capital firm will look for backing evidence that an idea is marketable, statistics on customer acceptance, and a realistic competitive strategy.

Presentation

If you are one of the chosen few who pass the initial venture capital proposal stage, you will then be asked to present your idea in person to the firm’s decision makers. Be advised that a live presentation should include a highly edited and concise PowerPoint presentation slide show and a polished verbal pitch with preparation to answer tough and direct questions.

You can convince venture capital firms that your business deserves their financial backing. However, to do so requires your attention to the details of your business idea, and how you present your ideas to the VC firm. Get your metaphorical ducks in a row, polish your presentation, and you will have a much better chance of getting the attention of VC firms.

Every entrepreneur with a great business idea wants the chance to get before venture capital investors or angel funding and be awarded a large sum of business capital. Alas, only a small number of all potential small businesses actually get the nod from venture capital or angel funding.

What does it take for a business to make the narrow cut and find themselves on the short list for angel funding? Here are a few important status milestones you

A Dream Team

Even an average business idea can be wildly successful with the right leadership team behind it. Angel funding groups and venture capital funding will scrutinize the management team on their prospects. They will look at the quality of the team in terms of years of experience, industry track record, and particularly other experience with successful startup businesses.

The Right Market

A fundable startup company will have the details of the market to prove to angel funding groups or venture capital funding that a market exists, and that it is not too big or too small. The market projections should be found within both the business plan and the business model so investors can see details of market research and how the market will be reached.

Industry and Geography

Before you submit any type of proposal for angel funding or venture capital funding, check the details of the venture capital or angel funding group to be sure of what types of companies they are interested in. These specs can normally be found on widespread venture capital or angel funding data bases, on their websites, and on their printed materials.

Start up funding groups tend to narrow their scope by industry and/or geography. If your start up business is not in either category for the funding group, don’t bother wasting their time or yours.

Believable Financial Projections

Angel funding groups and venture capital funding firms have seen enough loosely based financial projections to spot the unreasonable and even laughable ones right away. Your income projections should be based on past experience, or at least on a reasonably similar business model within the industry. It should clearly state reasonable gross margins of at least 50% and rational profit projections. Don’t display outrageous net profits of 20% or more – it will get your proposal tossed out immediately.

A new start up business can get financial backing from angel funding or venture capital funding. Following the above four milestones is a must in order to be considered a “fundable” company.

Financial trends have their ebbs and flows, their ups and downs, and their hot and cold trends. Sometimes the stock market is bullish, and some years it’s a bear. Some years, real estate is a great investment with a big payoff, while other years it is wiser to avoid any investment in real property.

Venture capital also experiences trends with certain investment markets. Experienced venture capital firms are wise to take note of which businesses and industries are more likely to succeed, and which investment opportunities are the best places to place their available funds.

2011 was a big year for venture capital. Since 2008, venture capital funds dwindled due to a shrinking economy. However, results of 2011 showed a 22% growth of total funds invested compared to 2010. And 2012 looks to be a banner year for investment opportunities in new businesses.

What are the hottest trends for venture capital funding in 2012? Here is a look at three of the top industries venture capital funds are looking at.

Software as a Service (SaaS)

Software is still hot, but instead of the old traditional method of buying software from a box at Office Depot, or even downloading code from an internet source, software companies are delivering their “product” through their own servers.

SaaS has been a growing sub industry of technology sub-industry ever since the advancement of lighting-speed internet. Clients can simply log on to a software vendor’s site, create an account, and experience the benefits of the software function.

Venture capital firms are finding that SaaS is a hot investment opportunity. If you are a new business in software development, consider SaaS as a possible option to catch the eye of venture capitalists.

Big Data in Information Technology

Information technology and security companies are receiving a lot of attention from venture capital firms. In the second decade of the 21^st century, the collection and storage of electronic data is more important than ever.

Industries such as health care and social media are big users of data. Companies that develop newer and more efficient database management tools that help with the collection, storage, and retrieval of large amounts of data will find their way into the good graces of venture capital firms.

Social Mobile Technology

Facebook has announced it will go public with a $5 billion IPO. Who says social media doesn’t pay? With the hundreds of millions of smart phones in users’ hands, and the myriad of new Android phones and Apple iPhone Siri, phone clients are looking to go mobile and stay there.

If you have a company that is able to tap into the mobile social media application market, you will be a hot player for venture capital in 2012.

With 2012 moving into full swing, many entrepreneurs aiming for venture capital funding are wondering what the investment temperature is. A good litmus test is by reviewing the past years venture capital funding activity.

It is no secret that venture capital firms invested much less in 2009 and 2010 than they did in prior years. This was largely due to the economic climate change. However, 2011 proved to be a year of growth and prosperity for venture capital firms. Here are a few interesting statistics about the year in review, as published by the National Venture Capital Association (nvca.org).

Investing Trajectory Examined

While 2011 did not see a large increase in the total number of deals (3,673 compared to 3,526 in 2010), the amount of total VC investment increased 19% from $23.2 billion in 2010 to $28.4 billion in 2011. That is more total investment that even in 2006, when the economic climate was booming.

Of those deals, 96% of venture capital funding went to businesses that were past the “seed” stage and into early stage, expansion, or later stage of their development. This was a change from previous years when VC firms planted almost twice as much seed money in new businesses in 2010.

With this trend, it seems likely that new businesses that are still in the “concept” stage will have tough competition for VC dollars. However, if your business is beyond first base, then you are more likely to hit a home run in raising VC.

First Time Deals on the Rise

Companies that are looking for first time venture capital funding can smile at the news that first-time deals rose 12% from the previous year to $5.0 billion. Looking ahead to 2012, new businesses with a solid record and an optimistic future can certainly catch the eye of venture capital firms.

The top three industries that received venture capital funding in 2011 were Software (with 24% of total funding), Biotechnology (17%), and Industrial/Energy (12%). These industries, along with medical devices and equipment, IT services, and media and entertainment, look to be continuing hot investment opportunities for venture capital firms.

Geographic Hot Spots for Venture Capital

Finally, where does the money go? California is still the hot spot for venture capital funding, with the Golden State raking in 48% of total VC investment funds. While CA is known for technology and software out of Silicon Valley, New York is now #2 with 10% of total funds. The trend in NY state is new internet companies who have found a welcome home base on the East coast.

2011’s numbers prove promising for companies who are growing, and we think 2012 will prove to bring good tidings as well for entrepreneurs.