With the list of US venture capitalists growing year by year, it can seem like an impossible task to find the right ones that are a potential match for your business.  Acquiring venture capital requires a tremendous volume of patience, research, and effort before you finally arrive with money in the bank from a granting VC firm. 

How do you narrow the prospective list of venture capital firms so that you can focus your business idea presentation most effectively?  There are many ways to narrow criteria to find a viable VC list.  Here are the most commonly used focus techniques:

1. Match Criteria

Each VC firm will publish investment criteria that exposes the firm’s desire for certain types of business, tolerance for risk, and average amounts of investment in each business they choose.  If you are looking for $1 or $2 million for growth and expansion, don’t approach a VC firm that only disburses $5 million or more to already established businesses.

By looking at a venture capital firm’s criteria, you can narrow your potential list from hundreds to perhaps a couple of dozen choices.  Read these criteria carefully, and you will have a viable list of potential VC firms.

2. Sector Preference

Many venture capital firms prefer to invest in certain industries, such as software or consumer electronics technology.  Know your potential VC’s preference for their portfolio investments.  Don’t waste your and their valuable time by submitting a business plan for your fashion design business to VC preferring software companies.

3. Stage Preference

Is your business a startup?   Are you an established business now looking to grow nationally?  Many VC firms will state what stage of business they prefer to invest in, whether it is startup, seed capital, or expansion.  Match your stage of business with a potential VC’s preference.

4. Avoid Conflicts

When you have a good and narrow list of potential VC firms, look at each carefully and check for potential conflicts with other companies that the VC has in their investment portfolio.  A VC firm will most likely not want to invest in your company if you are a competitor to one of their portfolio holdings. 

5. Narrow a Location

Most VC firms like to invest in companies that are local to them.  Locally could mean the same metropolitan area, state, or region.  Find out where your potential VC firm prefers to invest its funds and approach the ones in your “local” area.

6. Ask

There is no harm in asking a firm that has declined your business for other venture capital firm suggestions.  VC firms are very familiar with the venture capital community and may know other firms that may be a better match.  Always ask politely and be genuine with your request.  There is usually no reason that members of a VC firm would not want to help your business if you are truly passionate about succeeding.

If you have an existing business and are on your way to acquiring growth funding and support from a venture capitalist, be sure to highlight any customer channels your business has through the use of social networking, or what is known as Web 2.0.  The buzz from online social networking can be a big boost to your business in the form of word-of-mouth recommendations and position your business for big growth potential – something that a potential VC likes to see.

Web 2.0 is the general term associated with the way users of the internet communicate with each other and connect online.  With tens of millions of web users actively posting content every day, Web 2.0 has a huge potential for the success of any business.  If you haven’t already, jump into the metaphorical ocean of social media and get your business noticed.

Blogs / YouTube

Does your small business have a website?  It should.  A website can have much more use that just a static web presence with your business products and location.  A website that is updated frequently has a much better chance of getting noticed by search engines.  You could easily start a blog that you update on a daily basis, or at least 2 or 3 times a week, with the happenings of your business, company highlights, and special promotions. 

Along with blogs are the sensations of viral videos seen on the popular YouTube.  If you have the gumption, the creativity, and the equipment, you could make short, clever videos of your company and post them on YouTube.  It could be as easy as making a “how-to” demonstration videos of a product. 

Facebook / MySpace

Social online sites like Facebook and MySpace are the latest and most hip ways for people from around the world to stay connected to their current friends and family, as well as long-lost classmates.  The power of MySpace among teens and those in their twenties was enough to singlehandedly power many companies offering MySpace related widgets, designs, and tools.  Of course, other businesses jumped on the bandwagon, creating a profile and collecting “friends” to whom they could promote. 

Facebook has gained much popularity with users of all ages and offers a similar way to keep your business name branded by forming “groups” and keeping your contacts posted with events and updates.

Opinion Sites

There are many online sites that allow members to post their opinions and recommendations about other websites.  A mention from some of the most popular sites could get your business noticed by millions of customers at once. 

Check out sites like Yelp, Twitter, Reddit, Digg, StumbleUpon, and Del.icio.us, and get your business name on there.

The popularity of Web 2.0 has helped thrust many businesses and online sites into a frenzy of customers.  You could have a tremendous advantage with VC groups if you can show them that your little business already has big numbers of potential customers. 

Do you know what stage your business is in right now?  Are you just starting with a great idea that you think will revolutionize the world?  Are you operating a current small business at optimal levels and ready to jump into a national expansion market?  Or are you ready to take on an acquisition and merge technologies and resources to form a giant in your industry?

Your business stage plays a large part in how much money you can secure from venture capitalists, and from whom.  Many VC firms are very strict about providing only seed money to potentially big businesses.  Others are only in the market to fund companies preparing to go public with an IPO. 

Take a close look at your business stage.  Then compare your positioning with those VC firms you have narrowed down to be potential funding sources.  Find out which ones invest in companies in your stage of development.  Here are the most common:

Early Stage

An early stage company is one that is not yet ready to position its product or service on the market.  A company in this stage may need seed capital or start-up capital in amounts ranging from $25,000 to $250,000.

• Seed Capital – If your business is still in the idea stage and you have yet to perform feasibility studies, market research, and product development, you probably are in need of seed money in order to continue getting your business idea into fruition.

• Start-up Capital – A business that has performed studies and research into their chosen market and is ready to take their product into the public is prepared to receive start-up capital from venture capitalists.  Start-up money can help with the initial marketing push, helping to distribute your product in the market.

Expansion

Expansion capital is for businesses already in or ready to start production today.  The amounts that venture capitalists usually invest in expansion companies range from $500,000 to $5 million.  There are usually four stages to expansion capital:

• 1^st Stage – 1^st stage funding is used towards full-scale production of a product.

• 2^nd Stage – Usually for companies in production and generating revenue, but not yet making a profit, second stage capital helps to grow receivables, inventory, etc.

• 3^rd Stage – Third stage, or “mezzanine” financing, helps businesses perform major expansion and perhaps even develop and introduce new products.

• 4^th Stage – Also known as “Bridge Financing,” companies in this stage are in need of capital to help smooth the way to a potential IPO within about six to twelve months.

Acquisition/Buyout

A company in this stage has advanced operations and is prepared to acquire another competing company as a subsidiary, or expand into new markets and products with the purchase of an existing company.  Monies for this type of capital can range from $3 million up to $20 million.

Be prepared to show your potential VC that you understand which stage your business is in and how you propose to penetrate or expand into new markets and reach the next stage.  Find a VC that funds that stage.  Then solidify your business plan so that you can convince your potential venture capital firm that they should invest in you.

Your small business or start up company is ready to make the leap into national or international exposure.   However, you need the support of a good venture capital firm in order to get the funding necessary for such a momentous effort.   Not only do you need a spotless and polished business plan, but you need a business model that shows your potential funding source just how your company produces and sells your product.

A business model is the framework or method by which your business will sustain itself in producing and selling a product or service.  While production requires infrastructure issues that are too numerous to overview in this article, there are seven important product-related issues that you should have in place when you go before a VC group with a request for financing.

1. Target Customers

How will you find your customers?  How will your customers find you?  These are important questions to know about reaching your target consumer.  You need to know your target consumers demographic and how best to reach them, whether it is internet, television, radio, magazine or newspaper ads.

2. Product Differentiation

The basic question here is: what make your product so special?   Every other company in the industry is touting the latest widget that looks just like yours.  What innovation and added value does your product have that sets it apart from the competition?  Note and highlight this in your business model.

3. Pricing Based Upon Economic Models

What methods did you use in determining a price for your product or service?  Pricing is a careful balance of the economic equation of supply and demand.  If you price too low or too high, customers may not demand your product.  You need to determine a price that is not too low so that you make a profit, and not too high that turns customers away.

4. Innovative Marketing

Selling your product requires innovation itself.   Will you depend on advertising to sell your product?  Or will you have a sales team that sells face-to-face with your customers?  You need to determine how best to sell your product and use the right marketing mix and techniques.

5. Distribution Strategy

Your distribution is how you get your product in the hands of your consumers.  Will you run your own retail store?  Do you plan to distribute to other retailers through distribution houses?  Will you sell business-to-business?

6. Customer Support and Service

Your business needs a way for your customers to contact you with questions and help with your product or service.  Can they reach you by phone?  Via internet website support?  Have a system in place that is ready to take on customers’ needs after you’ve sold your product to them.

7. Customer Satisfaction

And finally, how will you transform target consumers into loyal customers?  One of the best business marketing techniques is word-of-mouth.  Gather a loyal following of customers who come back again and again and tell their friends, and your business can grow exponentially in contrast to regular marketing.  Offer satisfaction guarantees. Do what it takes to get a loyal following and your business will grow and thrive.