Many entrepreneurs have a great business idea, but need some advice and a little encouragement on how and where to get venture capital.  And given that the venture capital community is tight knit, you often need to include venture capitalists in your network to secure funding. 

Where else can a newbie entrepreneur get great advice than at a VC conference?  VC conferences are held around the country, and they are particularly popular in California.  At each conference, hundreds of entrepreneurs show up with their best suits on and copies of their business plans in hand seeking advice on improving their chances at Venture capital.

What kind of valuable information could you obtain at a VC conference?

Seminars and Workshops

At each conference, there will be a wide range of seminars that are usually hosted by VC investors who give advice on certain topics.  Here is just a sample of what you can attend:

• Keynote Addresses – At every VC conference, there is usually one or more keynote speakers from major venture capital companies.  Their speeches can be invigorating and encouraging, offering great advice to attendees.  Hearing the best advice straight from the horse’s mouth is one of the best ways to pinpoint your strategy for approaching a VC firm.

• Early Stage Capital – You might find that a workshop on early stage or startup financing can be very helpful.  If you’re an entrepreneur with a startup business and are unsure of your next steps you need to take before approaching a VC firm, attend one of these workshops and get some valuable advice.

• Pitch Coaching – VCs receive a lot of pitches from an infinite amount of entrepreneurs.  They know what works best and what they want to see.  Find out how you can formulate your pitch strategy in a workshop that offers coaching on your pitch presentation.

• Panels – Oftentimes VC conferences will have a professional VC panel Q & A where you can ask and hear other entrepreneurs ask important questions about Venture capital.  These panels not only are a great way to get answers, but a perfect place to network with other entrepreneurs and VC investors.

Network with VC Investors

Your time at a VC conference could lead to face time with important VC contacts.  There is usually time built in to a VC conference for hobnobbing and schmoozing.  Get in and introduce yourself to VC attendees.  This is a perfect time to practice your “elevator pitch,” where you introduce yourself and a 60-second or less pitch about your business.  Get advice, get contacts, and get remembered.  But don’t get remembered as that pushy guy who hogged all the time with VC representatives.  Be professional and considerate.

Low Cost

The best thing about VC conferences is that they are extremely affordable for the information and contacts you could gather.  For around $75 to a few hundred dollars, you can get access to valuable information that could lead to millions invested in your company.  Plus, the cost of attending is tax deductible!

If you’re like many entrepreneurs who have a great business idea, you may have approached a venture capital firm with a proposal for additional capital financing.  And like many entrepreneurs before you, you may have been rejected before you even met face-to-face with the people at the VC firm.  Getting a rejection from a VC firm is not necessarily the end of road, nor should it stop you from continuing to pursue venture capital.

Your rejection can lead to keen insights in what you and your business need to do to improve chances of receiving a “yes” vote from another VC firm.  But in order to get access to those insights, you need to approach the rejecting VC firm and ask for feedback.

Why Ask For Feedback?

A VC firm typically has deep experience in knowing what business models work and what doesn’t.  After all, they are in the business of helping companies succeed.  Their experience can provide valuable information to you in how to present your idea in a better light, or at least on how to improve your business model so that it will look attractive to VC firms in the future.

A venture capital firm’s reason for passing on your proposal may help you discover how your perspective differs from other professionals.  You may find out that your “great” business idea is not so great after all, or it has already be tried, tested and saturated by other entrepreneurs before you.  You may want to re-evaluate your business idea and find other ways to make it innovative and fill a niche.

You also could find out that your business strategy does not align or match up with that particular VC firm’s investment portfolio.  In that case, you may want to review your list of potential venture capital firms and re-evaluate which ones to approach next.

Ultimately, you may learn that your business idea and business growth strategy does not fit with the high expectations of a VC firm.  You may want to re-evaluate other capitalization options other than VC firms in that case.

How to Ask

You need to approach the firm and tell them you are interested in their feedback.  VC firms are not in the habit of providing feedback and constructive criticism to rejected entrepreneurs.  For one thing, they are far too busy.  Another reason is that they know that entrepreneurs may not take rejection and criticism well, and subsequently, they do not make a practice of providing it.

However, it is likely that you can get some positive and constructive information if you only ask.  Be sure to be polite and always remain businesslike.  Your attitude will be a key in whether a VC provides feedback or not.  You can ask by email, a business letter, or a phone call if you feel it is appropriate.

What Not to Do

What you should avoid is being rude to a VC firm that has rejected you.  Remember, it’s nothing personal.  It’s just business.  Leave your pride behind you.  And don’t continually bother or pester a VC firm if they do not respond or have refused to give you feedback.

Your business idea is your brainchild, and you should be ready to nurture it into the business that you dreamed.  Asking for feedback in order to make better decisions and improvements is never a bad business idea.

Within your business plan is an important set of projected financial documents about your company’s future revenues.  But who can really tell the future?   Just how accurate should you make your financial projections in order to impress a potential venture capital firm?  The answer may surprise you.

Which Financials Venture Capitalists Care About

The fact is that VC groups are not concerned with your short term financial gain.  Though this may seem contradictory to a VC firm’s strategy to make money, the fact is that investors are more interested in a small business’ future shareholder value rather than the short term profit potential. 

Venture capitalists make money at the exit point in an investment, or when it’s time to “cash out” of their part of the deal.  In many cases, this is the point when a business goes public on the stock market with an IPO, or when the business is purchased by a larger entity.

To that effect, venture capital firms will invest in companies with high-growth potential, where larger profits down the road translate into greater shareholder value after the infusion of Venture capital.  A capital investment from a VC group into a small business is mainly used to grow the company with the purchase of additional equipment, marketing, and skilled workers.  If the small business does see even small positive revenues in the early years, it is expected that the business will re-invest in additional capital development and stimulate further growth. 

What to Include in Your Financial Projects

Therefore, knowing that your future revenue projections are nothing more than an educated guess, venture capitalists will always take that into consideration.  However, that doesn’t mean that you should skimp on the effort to produce well-formed opinions about your company’s expected revenues.  You still need to make the effort to show expected revenues and expenses based on previous experience, or if your company is new, on the past experience of similar companies in your industry. 

A VC firm will be looking at three things with your financial projections:

1. They want to know that you have made reasonable assumptions.  Your assumptions in your revenue growth will help a VC firm establish whether your company can become a rapid-growth company, or if it will take some time before larger returns are noted.
2. The financial math is important as well.  Your revenue growth percentage and other financial ratios, such as your liquidity, profitability, and debt ratios, will provide the VC firm with additional confidence in a potential investment.  Make sure these numbers are solid.
3. And finally, VC firms want to know your strategic plan for growth and how you will build your company.  If your strategies are solid, you could be rewarded with capital investment from a VC firm.

Though you can only make guesses about the future, be prepared to show educated projections and be ready to discuss key financial issues with a VC firm.  With solid math behind the numbers and a good strategy, you could make your predictions a reality.

Venture capitalists like to invest in companies who can control their cash flow.  Many entrepreneurs with businesses that have poor or negative cash flow come looking for Venture capital in hopes of plugging the hole and finally generating profits.  Unsurprisingly, these entrepreneurs are likely to be rejected for a VC proposal.  Who wants to invest in a company that already isn’t making money?

If you have a near break-even cash flow or worse, here are four ways you can get your cash flow in the black before you approach a VC firm for capital financing:

1. Increase Sales

Of course, the logical positive cash flow is to increase sales.  However, there are more ways to do this than just trying to sell more. 

1. Sell less of a poor sales product line.  If you have a product or service that does not sell particularly well, cut back or eliminate it altogether.  This will allow you to reduce your costs for the alligator that is eating away at your bottom line.
2. Focus more on your popular product(s).  The alternate to the above statement is to make a sales push for your most requested items or services.  Capitalize upon the strength that your company has while minimizing the weakness. 
3. Increase prices.  Another way to increase sales is to raise prices.  How long has it been since you adjusted your sales prices in relation to costs?  You could start making more money and enjoy a better cash flow with even a 10% price increase.
4. Increase marketing.  And of course, you could make a marketing push.  Spend a little more on the marketing tracks that work for you to secure additional exposure.  If your budget is severely limited, consider working with a joint venture marketing partner or bringing on affiliate marketers.  With these partners, you can instantly increase your target audience without spending a dime.   

2. Reduce Expenses

At the other end of the spectrum is minimizing your expenses.  Take a close look at your budget.  Talk with your department heads.  Find ways you can scale back on expenses.  Perhaps there is a cheaper way to manufacture a product.  Or, if you offer services and do not have a “cost of sales,” look for ways to reduce overhead.  Can you find a cheaper office to rent?  Perhaps you do not need a company car.  And why do you really need that stack of $10 pens when a $.50 pen will do the job?  Cutting expenses can hurt, but the increase in cash flow may be worth the pain.

3. Use A/P Leverage

Do you pay your vendors as soon as you receive an invoice?  Hold off on that invoice until it is due, which is usually 30 days after the date of the invoice.  Why?  If you buy items wholesale and sell at retail, or manufacture a product, you probably haven’t sold it and actually received cash for that item if you pay the invoice within 10 days.  What’s the point of that 10% discount if you don’t have the money in your account yet?  Use the leverage of waiting to pay invoices until they are due.  You might even talk to vendors and ask for an extended waiting period.

4. Collect on A/R

Finally, you need to get paid.  If you have money owed to you, that’s money not included in your cash flow yet.  Make an effort to reduce the amount of your accounts receivable.  Hire a good A/R collection specialist.  They can be worth their weight in coins.  Tightening up your A/P means you need to focus on the following:

• Develop a strict credit policy for those who want to be invoiced.  That means check credit and references.
• Set a credit limit for each of your approved customers.
• Promptly send an invoice on the day the service or product is sold.
• Set up an invoice tracking system that begins collections the day after an invoice is past due.

Focusing on just a few areas around your cash flow system can greatly increase your potential.  It doesn’t take long to review your processes and find ways to improve.  Make the changes today and start seeing more cash (and possibly VC funding) tomorrow.

A new study on venture capital exits has revealed that entrepreneurs are feeling the bite of acquiring big capital.  As a response to changing economic conditions, VC firms are demanding higher payouts at their exit and requiring stricter demands on their exit terms, even before a check is written to a new startup venture. 

The survey, conducted by California law firm Fenwick & West, revealed that VC firms are looking at liquidation preferences as their number one exit strategy.  For the entrepreneur, this means when you make your business such a success that it is acquired by another bigger business, the first to take the cash will be the VC firm. 

What Else Venture Capital Firms are Demanding from Entrepreneurs

According to the study, the stakes even are higher than liquidation preferences.  VC firms are requiring two and sometimes even three times the investment they put into a company.  If a VC invested $5 million in your company and you later sold it to a larger conglomerate, the VC would insist upon a payout of up to $15 million before you even saw a dime.  

Companies that go public through an IPO are also seeing higher stakes.  Usually, a VC firm will ask for preferred stock at the IPO, giving them a non-ownership stake in the company, but first pick on dividends.  However, lately some VC firms are requesting common stock, which gives them voting rights in the company.  A VC firm with a large common stock share can continue to have much influence on a public company.

How to Negotiate with Venture Capitalists

How can entrepreneurs get their fair share and prevent VC firms from taking the lion’s share of profits?   It is important to stake your claim in your company and negotiate appropriately for the initial investment terms.  While venture capital firms may seem to have the upper hand in doling out the funds you need, keep in mind that their industry is very competitive.  If your business idea is truly genius, innovative, and profitable, there are many other VC firms that are waiting to take over the deal – and the VC firm with whom you are negotiating knows this fact too.  Remember, you are the founder of the company, and you should enjoy your fair share of profits once you bring the idea to successful fruition. 

Another way to prevent a massive cash-out to the venture capital firm is to find other ways to capitalize your business.  VCs offer a lot of money to help companies expand, grow, and ultimately gain the market share that makes them successful.  But they require a big payout for that investment.  If you can find other options that are more reasonable, look to them as alternate ways to finance your business.

Of course, you could simply live with the terms that the VC is seeking.  If you plan to be with your company for the long haul, then let the venture capitalists take their money at their exit.  As long as your business continues to be successful after a VC cashes out, you will ultimately see the financial reward for your work.

Venture capital members consistently note how frequently they are contacted by entrepreneurs looking to raise capital for their small or startup business, but are reticent to provide details about the business.  Why?  The main reason seems that some first-time and amateur entrepreneurs fear that their “big” business ideas will be stolen if they are not approved for the requested capital.

Not surprisingly, holding back on business details makes it very difficult for a VC to decide whether to invest in the business or not.  In order to make a well-informed decision to invest, a VC firm needs to know important details about the business to which they may transfer millions of dollars.  Therefore, it is extremely important for entrepreneurs like yourself to be ready to share information that is requested by a VC firm.

Rather than holding back your business secrets and proprietary information, it is wise to go ahead and share with VCs for a number of reasons:

A VC Firm’s Business is Making Money

VC firms are in the business of investing in businesses and making money, not stealing ideas and starting their own companies.  They are far too busy managing their current and future investments to be taking good ideas and making them their own.  They leave that to the entrepreneurs.

Venture Capitalists Are Privy to Many Ideas

Every week, venture capitalists are reviewing requests for capital investments from new and existing businesses.  That means they hear a great many new and innovative ideas that may not be on the market yet.  Venture capitalists know the importance of proprietary information and want to maintain their ethical reputation. 

Your Idea May Not Be All That Innovative

Believe it or not, many entrepreneurs believe their business idea is the best thing since the invention of the automobile.  In reality, their idea may lack real innovation to penetrate the market, or it may already be saturating the market by other businesses.

Giving to Receive Feedback

One of the biggest advantages to sharing your business information is that venture capital firms successfully invest in a great range of businesses.  They can offer much in the form of feedback on improving your idea(s) such as:

• Developing marketing and sales strategies
• Suggesting better business models
• Pointing out the key challenges based on experience
• Recommending potential partnerships

Venture capital is a great strategy that can help take your innovative business idea to great levels.  Don’t hesitate to share your business strategies, innovative ideas, and proprietary secrets to a VC firm who may be interested in lending you millions.

If your startup or small business is ready to make the leaps and bounds into big business with the help of venture capital, review your business for any intellectual property that you should have on file with the proper U.S. government office.  Patents, trademarks, and other copyrights are important legal intellectual property and may be vital to the success of your business, especially if your enterprise consists of invented or creative works.

Here are the main types of intellectual property and where they can be registered:

Securing Patents

A patent may be granted to you, the inventor, by the Patent and Trademark Office.  Patent terms are 20 years from the filing date and are only effective within the U.S.  A patent protects the inventor, or whomever files for the patent, by granting the legal right to prevent or exclude others from “making, using, offering for sale, or selling” the invention in the United States or “importing” the invention into the United States.”

If your business idea is an invention that you have conceived and developed, and you plan to take your business invention to market, apply for a patent as soon as you can.  You may need the assistance of an attorney specializing in intellectual property.  However, having the patent filed before you meet with a VC group shows them that you have the legal right to prevent others from stealing your idea.

Obtaining Trademarks

A trademark is a word, a name, a symbol, or a device which is used to distinguish the source of goods in trade with goods.  McDonalds™, Neiman Marcus™, and Target™ all are distinguished by trademarks that prevent others from using their name and symbol in the trade of goods. 

Trademark rights may also be used to prevent others from using a confusingly similar names or marks, but it does not prevent others from making or selling the same goods under a definite separate mark.

Trademarks are generally used with established businesses that use their name and/or logo as a brand for selling.  Most startups will not have the need for a trademark, but if your small company has been conducting business for a period of time and has a recognizable name or logo, it would be wise to register it with the Patent and Trademark Office.

Using Copyrights

A copyright is a form of protection granted by the Copyright Office of the Library of Congress to the creators of “original works of authorship.”  These include “literary, dramatic, musical, artistic, and other certain intellectual works, both published and unpublished.”  The 1976 Copyright Act gives the owner of copyright the exclusive rights “to reproduce the copyrighted work, to prepare derivative works, to distribute copies of the copyrighted work, to perform the copyrighted work publicly, or to display the copyrighted work publicly.”

The copyright protects only the “form of expression” and not the actual topic matter of the creative work.  As an example, a magazine article could be copyrighted, but it would only prevent others from copying the actual wording of the guide.  It would not stop others from writing and publishing an article on the same topic.

By having your patents, trademarks, and copyrights protected, you show venture capital firms that your ideas are well protected from competitors. 

Business is simply the art of selling.  Whether your company sells products or offers services, fundamentally, business is driven by sales.  Selling is what you must do to grow and keep your business alive. 

You may be in the process of selling your business idea to a venture capitalist firm in order to acquiring financing for growth and expansion.  Are you ready to close the deal?  The most successful entrepreneurs will know how to sell effectively and make a closing on the important deals, whether it is securing venture capital funding or a major client.    

Listening to Sell

Listening is the most important part of selling.  You need to know what your customers need by listening to them.  It’s easy to ask a customer in a car lot what they’re looking for in a new automobile.  However, how do you know what your potential VC firm needs for its portfolio?   

Listen carefully to the partners’ comments.  Are they voicing concerns about the rate of return?   Are they commenting about technology differentiation?   What about viral growth?  By honing in on the venture capitalists’ comments, you can easily address their concerns in your presentation.  

Understanding Your Targets

Listening requires more than just hearing.  You must comprehend what the customer is saying.  A car buyer looking for an economical family sedan should not be shown a luxury Cadillac. 

In the world of venture capital, you must go into the presentation room with a solid understanding of who the firm is.  Are they predominantly a technology venture capital firm?   Based upon their recent funding projects, is the venture capital firm looking to diversify its portfolio?  Who are its success stories, and which companies have failed? 

When you understand the context of the venture capital firm, you can then best assess how to frame your presentation and answer their questions to fulfill their needs.  If you can understand why a venture capital partner is asking a particular question, then you are quickly on your way to closing the deal with the firm. 

Delivering a Solution

Presenting a solution to your customers is how your business thrives.  This means you have listened to customer needs, understood their dilemma and problems, and developed a solution that solves the problem.  Whether it is a stronger garbage bag or a widget that surpasses the competition by leaps and bounds, you have developed the way to service the needs of customers. 

This final stage of selling requires your ability to convince your customer or venture capital firm that what you offer is just what they and the market need.  If you will succeed at sales, you must convince the client, either through marketing or face-to-face customer interaction, that you understand their needs and have the perfect solution – your product!

Whether you want to grow your business by acquiring more customers, or are looking for venture capital for big future growth, hone and practice your sales skills.  Then you can know exactly what you need to deliver to your audience.

A startup company, like a small child, needs years of steady nurturing, encouragement, and discovery of what the final product will become.  Unfortunately, there’s no training for first-time parents.  However, a startup company has the benefit of getting nurtured by an experienced set of managers and decision makers – ones who can use their years of experience to steer a small business on the right course.

Do you think a venture capital firm would want to invest hundreds of thousands, possibly millions, into a small startup company with inexperienced managers?  You may as well have a landlover entrepreneur build a cruise vessel, exclaim himself as captain, and have his ditch digging colleagues come on as his crew.  Clearly, the outcome for that venture is not favorable.

However, if the landlover entrepreneur were enterprising and convinced 25-yr veteran cruise captain, along with other experienced engineers, hotel and entertainment staff, to join him in his innovative cruise idea, there is a likely chance that it will succeed and a VC firm would want part of that action.

No matter how good your business idea is, your leadership team will be the essential chemistry that instills confidence in your financial backers.  Venture capitalists want to know about the core people who are the company.  The right mix of experience, personality, and passion in your team can set your startup apart from the rest.

From a venture capitalists’ perspective, what are some important elements that your leadership team should possess?

Experience, Experience, Experience!

Akin to how important location is to real estate, for a startup company, the most crucial factor is “experience, experience, experience.”  Assemble a leadership team who has proven experience.  Of course, the ideal candidates will have been successful in the same roles in a similar startup company. 

However, if you cannot find a candidate with the exact same experience in a startup endeavor, find team members who are experts in their respective fields, such as a CPA for your CFO, an engineer for your chief product technician, and a head marketer with proven success in promotions. 

Business Smarts

Sometimes smarts and intelligence can be a better substitute than experience.  If you can find members of your leadership team who are creative, smart, and full of ideas that can work for your business, then you further strengthen your endeavor in the eyes of a VC firm.

Passion and Drive

Venture capital firms like to back startup companies that have people with resolute passion for the endeavor.  Do you believe in your innovative product with all your heart and are able to convince others of its virtues?  Does your CFO love maximizing the internal rate of return and possessing Ghandi-like ethics?  Has your chief software developer been writing computer programs since his old Commodore 64 in junior high?  These are the people you want standing before a VC committee.

Resounding Commitment

And lastly, is your team committed to your business venture?  Some people, believe it or not, have an alternative motive for joining startups.  It may be just to get out of their current company and career, or simply the chance at more money if your business succeeds. However, the true test of your team is if they are passionate about your entrepreneurial venture and are committed to seeing it through to success.

You, as an entrepreneur, have a monumental job of finding and convincing the right people to join you onboard your metaphorical ship before it sets sail.  But if you have chosen carefully and wisely, your potential VC backing may just say “yes.”

What is innovation to your business?  Is it the how you provide the absolute best in customer service in your industry?  Is it the way you perform business operations efficiently to save money and get the most out of your production dollars?  Are your products your core innovations, with new releases each year?  There are countless ways you can incorporate innovation into your company – and this originality should continue to grow along with your business. 

Entrepreneurs face the challenge of creating and growing businesses that must constantly change as they meet consumer demands.  What worked five years ago may not work this year.  While your business idea may have fit a market niche last year, consumers ask for something different today.

Innovation is not simply just a new spin on an idea.  It is the constant process by which your business meets demands by creating solutions.  But with all the demands put upon you as the entrepreneur and founder of your company, how do you find ideas to continue innovation?

Employee Suggestion

Your employees are one of the greatest assets of your business.  Many entrepreneurs treat employees as a necessary expense, and by doing so, receive the bare minimum of effort from their workers.   However, if you empower your employees with ownership of their tasks and duties, and by giving them the freedom to suggest options for better efficiency and customer service, you have found a potentially bottomless source of business innovation.

Salespeople who work face-to-face with customers daily can offer great suggestions for better packaging or other improvements that meet customer needs.  Who would know better than the salespeople who ask the customer directly how to serve their needs? 

Be choosy when you hire your administrative staff.  The most creative ones can offer ways to save overhead expenses by developing more efficient procedures and inventing new time-saving processes.

Customer Feedback

Listen to your customers.  Solicit their feedback.  Ask them for advice on how you can serve their needs better.  Customers love to tell businesses how to do it better.  While their feedback may not always arrive in the nicest way, by analyzing what your customers say in their complaints and solicited comments, you can continue your innovative process to grow your business.

Follow an Example

Some adages say it’s better to lead than to follow.  However, there is no harm in matching, or even surpassing, your competition by imitating their processes.  Keep a constant finger on the pulse of your industry.  Read trade magazines.  Attend conferences.  Find out what everyone else is doing and what is working.  You can take those ideas and incorporate them into your own business processes to become more efficient and improve product ideas. 

Innovation requires constant creativity, work, and evaluation.  However, in order for your business to succeed for years to come, you must find ways to keep your product and business fresh for your customers.