Why do venture capital firms and entrepreneurs have such conflicting views about each other?  It could be experience or reputation.  Venture capital firms have seen all types of entrepreneurs and think they can spot a “type” in an instant.  On the other hand, entrepreneurs may hold negative viewpoints about a venture capital firm because of its reputation.  However, all these expectations cause potential conflict between a VC firm and an entrepreneur. 

If you want to avoid this type of negative imaging that may cause a loss of venture capital funding, here are two ways you can change your viewpoint.

Entrepreneurs Want Money…VCs Want Partners

Many times, conflict arises when an entrepreneur has an egotistical desire to retain control of his or her business.  They seek capital funding for millions of dollars from a venture capital firm, but then expect the VC firm to keep their “hands off” the company.

From the venture capital firm’s viewpoint, they have invested millions of dollars in a startup company.  They want to assure that their investment is nurtured and moves in the right direction for maximum profit potential.  Therefore, their perspective is that they are a partner in the business and not an arms-length lender.

New entrepreneurs would be wise to take the advice of a VC firm.  Input from a VC firm is based on experience and previous knowledge.  An entrepreneur may hold on to a specific idea, but if the VC firm is insistent that it will not work, it’s best to take that advice and move onto other parts of operating your business.

Softening Greed and Ego

It is true that many venture capital firms have been started by rich investment bankers who saw a “gold mine” in certain industries or particular geographical areas.  Those who reach financial success sometimes forget how persistence, determination, and luck are needed to become a success.  Instead, these rich new VC investors believe their way and experience is the only way to make money.  They do not give new entrepreneurs any leeway in making decisions or exploring creative options. 

If a start up business will succeed, it needs not only capital investment, but careful nurturing and guidance.  New entrepreneurs would be wise to heed the guidance of wiser venture capital investors.  And VC investors need to know that even though they do hold the money strings, it is important that ingenuity and innovation are free to take a startup company toward the riches it deserves.

Who are the successful entrepreneurs who have been awarded venture capital funding?  Are they just lucky?  Did they hit on a timely idea?  Were they well connected?  Was it a combination of all three?  

Neither luck, a great idea, nor networking is dependable enough to set an entrepreneur apart from the rest of the pack.  Instead, here are three “p” qualities that an entrepreneur needs to assure at least a modest chance of acquiring venture capital funding.

Preparation

How will you get your startup company ready to be shown to venture capital firms?  The most likely candidate for VC funding is an entrepreneur that is well prepared.  That means getting everything in order to make an investment choice easy for start up financing. 

Get your business plan written and polished.  Show that your market is poised and receptive to your new product.  Practice your VC funding presentation over and over so it’s ready to go at any time.  And most of all, prepare to be committed to your own project.  Entrepreneurs who have an attitude of, “let’s just see if it works” will not be very successful at securing venture capital funding.

Positioning

A smart entrepreneur will have a strategy for positioning his or her start up business for the right venture capital firm.  You must understand that there are thousands of venture capital firms ready to invest in thousands of different types of start up businesses.  That means you must have a product that is tested and primed for a receptive market.  You must assemble a top-class management team.  And you must know which VC firms who are good candidates for your type of business.  Get your start up positioned correctly, and finding a VC funding firm will be much easier.

Perseverance

Those entrepreneurs who give up after the first rejection will not succeed.  However, those who persevere and understand that the next opportunity might be the right one will be the ones to take home the VC funding.  You must be willing to put in the time and energy necessary to get everything just right.  Make adjustments.  Reposition.  Re-assemble management teams.  Do what you need to do to persevere and make your start up the right choice for a VC firm.

Venture capital funding is not an exact science.  However, past experience shows that entrepreneurs who possess these qualities have a better chance at venture capital funding success.

Entrepreneurs often complain about how much trouble it is to find venture capital funding.  Many venture capital firms are very strict about the geographical area in which they invest – which leaves entrepreneurs with great ideas and potentially successful business plans with fewer startup capital options if they are not in a “hot” region. 

So why do venture capital firms get choosy about location?  There are many reasons, and some venture capital firms may only choose one good reason to stay locally.  Here are the three main reasons a venture capital firm will choose certain areas:

Visiting Investments

If a venture capital firm invests only in local or regional startup companies, it is easier to visit and work with them.  Venture capital firms spend a great deal of time overseeing and taking an equity stake in their startup companies.  When a startup company office is driving distance, or at least a short plane ride away, a venture capital firm can be at hand to help develop the startup company more easily.

Fertile Investing Area

Some venture capital firms choose a certain area or region because it is a fertile ground for startup companies.  The best example is Silicon Valley in California.  There are more venture capital firms there per capita than anywhere else in the country.  These firms are right in the middle of one of the hottest technology regions in the world. 

The Silicon Valley attracts the smartest, the brightest, and the most ambitious entrepreneurs.  New ideas for startup companies are discussed and finalized over lunch there.  So why not establish a venture capital firm office right in the middle of that action?  With so many potential booming new businesses, a venture capital has its pick of the best.

Best Managers

Another reason venture capital firms choose a specific region is because they like startup companies with experienced and talented management teams.  If an area is hot for new startup business, it attracts workers because of the challenging job opportunities, as well as the very lucrative salaries and stock options.  A startup company will have access to these bright managers, who in turn are attractive to venture capital firms seeking start ups with experienced managers.

If you find yourself in a city with limited venture capital activity, consider relocating your startup or focusing on venture capital firms without geographical constraints to make your startup funding endeavors easier. 

The best new businesses are those with innovation incorporated in the business process or product.  The dictionary defines innovation simply as the introduction of a new idea, method, or device.  However, when it comes to venture capital, this definition is taken a step further: innovation is an idea or method that is new and improved. 

It is not enough to present venture capitalists (VCs) with a new idea.  The old saying that ‘anything that can be invented has been invented’ is somewhat true.  Most inventions are simply innovative improvements on an old idea.  Your business idea must be a concept that can impress VCs as revolutionary and marketable to customers as something they need.

Innovation doesn’t need to be restricted to useful products like cell phones or automobiles.  Service innovation is highly in demand as well.  If your entrepreneurial venture is a service business, show your potential financing partners how you have designed your service as something newer and more reliable than previous methods.

Fulfilling an Outstanding Need

An innovative business idea should fill a need.  Your potential customers should find your product or service something they need in their life to make it easier, improved, or more fulfilling in some way.  In that sense, it should fill a niche in which you can emerge as a prominent provider of your service or product.  Don’t just make a new golf club.  Create a club design that can help solve a slice or cure a hook.

Innovative Demographics

Your target customer could be part of your innovation.  Show venture capitalists how your product will sell to teenagers with limited budgets or to wealthy yacht owners.  Your market research should demonstrate to VCs how your product or service will be in demand to what market segment.

New Knowledge

If you have researched a new and improved idea, method, or device, display your work proudly before a group of VCs.  Innovation in service or products can be found with new knowledge gleaned from research.  Reveal your scientific methods and results and how they can improve the lives of consumers. 

Your innovative strategies are what will set you apart from other businesses when trying to obtain venture capital funding.  Let your innovation shine and use it to convince venture capitalists that your business will be in demand.

Business plans are one of the most important marketing tools for your new business.  A new business with a sharp and focused plan will be the one that gains the attention of venture capitalists and eventually receive investment monies.  Is your business plan ready to be shown to a venture capitalist firm?

How would you know whether a business plan is perfect or not?  First, a business plan cannot be a simple template easily downloaded from the internet and switched with your business information.  It must be unique and well-written with your business in mind. 

Who Should Write Your Business Plan?

Preferably your business plan should be composed by a professional writer who specializes in business plans and can make your business shine.  Although there are many do-it-yourself software packages available, a professional writer has the experience and the narrative capability to help your business plan shine.  However, a professional writer is not cheap or inexpensive.  They are experienced professionals who should have a number of other business plans under their belt.  But the money spent on a good writer may be the difference in attracting the attention of venture capitalists.

What Should Your Business Plan Focus On?

Your business plan must focus on the strengths of the business.  Are you planning to fill a special niche in your industry?  Or provide a special value-added service?  Be sure to highlight how your business will stand apart from the rest.  Is your business leadership team composed of top members in the field with stellar resumes?  Give special attention to that focus in the plan. 

The Financials

By far, you will find that venture capitalists will want accurate projected financial data in your business plan.  Give the financial section of your plan extra attention.  Conduct research on other similar start-up companies in your industry.  What was their financial growth like?  Use all the data available to provide the most complete and comprehensive financial projections possible. 

Before you go into a meeting with a venture capitalist firm, be sure you are ready to provide them with a shining business plan.  Write it well.  Do the research.  Focus on your strengths.  With the right business plan, you will have the tools to get a VC firm on your side.