Entrepreneurs are usually impatient about securing venture capital funding.  They have a great idea and want it to get started NOW. However, it is always best to step back and get yourself ready for the venture capital firm hunt.  Asking these important questions can save you significant time in finding the right VC firm and getting a “yes” answer.

How Much Money Do I Need?

This is an important question to know before you approach a VC firm.  If you have performed your market research and product development research, then you should have a good idea how big your potential market is and how you need to get your product ready for it. 

Movie producers don’t just start making a motion picture at a whim.  They carefully prepare a budget for every step of the way, including pre-production, filming, and post-production.  They know exactly how much a movie will cost to produce.  The same holds true for your start up.  Know how much start up funding you will need to reach your targeted market.

Have I Written My Executive Summary Dozens of Times?

An executive summary is the most important portion of your business plan.  It is the summarized whole of the plan that VC firms will read first to find out whether they want to read more.  Make sure you send your executive summary past the eyes of many advisors.  Have business contacts read it.  Have your lawyer and accountant read it.  Make changes each time with their suggested input.

To Whom Should I Send my Executive Summary?

Rather than just submitting your executive summary to every venture capital firm that shows up on your radar, you need to have a coordinated effort.  A VC firm that specializes in your type of product or industry will more likely read your executive summary and contact you for more information. 

Should I Seek VC Funding from another Region?

In most cases, VC firms are strict about their geographical investment borders.  VC firms tend to invest more locally or regionally for many reasons, including having close contact with their investment portfolio companies. 

However, you can still succeed in getting VC funding from an out-of-state VC firm.  Check every VC firm carefully for their investing guidelines.  Find ones who are open to great investment opportunities outside their normal geographical range.  If your product and company are a good fit, then an out-of-state VC firm should at least give you consideration.

The ability to successfully obtain venture capital funding depends a great deal on the management team assembled in a startup company. Entrepreneurs may have big dreams and big ideas, but no one attempts a large business venture alone. That is why it is so important to empower your management team if you want to obtain VC funding.

The Value of Management for Venture Capitalists

One of the most important qualities a VC firm looks for in a startup business is the management team. The VC firm wants to know that the team has quality leaders who are experienced in their field of expertise. Their experience will become invaluable in making decisions for the startup company as it meets challenges, especially if management team members have previously gone through the experience of a startup company.

However, what good is expert management team advice if an entrepreneur doesn’t empower them to make decisions? Many times an entrepreneur has assembled a powerful management team for the sake of obtaining VC financing. But ego and the allure of power prevented them from taking valuable advice and resulted in poor decisions for the company.

Empowering Your Management Team

What can you do to empower your management team and be in a better position for VC funding?

• Trust – Learn to trust the experience of your management team. You will have a better chance at VC funding if you trust your team to pull from their education and experience.

• Ask – Don’t be afraid to ask your management team for advice and help. Entrepreneurs are the leaders of new startup companies. However, a good leader knows when to take advice from a qualified team member.

• Encourage – Don’t forget that even experienced managers need encouragement too. Learn to encourage their input, and reward managers for great ideas and winning decisions.

• Provide Resources – A manager who has the resources he or she needs is more likely to help your company get VC financing. Make sure you provide money, technology, and even human resources that will help a manager help your company look great for VC firms.

It takes a village of qualified people from a wide angle of fields to make a startup company work. VC firms know this fact, and your funding depends on a company having the right management team. Be sure you empower your team to get the highest results.

Many entrepreneurs want to start a new business and think that venture capital funding is the only way to get the capital needed.  Why?  Simply because the term “venture capital” is tossed around so frequently.  It is associated with capital for new companies.  The thought is, “if you’re venturing out on a new business, venture capital financing is the way to go.”

Although this is partially true, there is much more involved with obtaining startup financing from venture capital firms.  Entrepreneurs must know that VC firms have specific guidelines for their portfolio investment companies, and many of those guidelines are universal.  If you are wondering whether your start up business is a good candidate for VC funding, here are a few good ways to know:

You’ll Be Serving a Large Market

You may have heard the term, “find your niche.”  Niche businesses are those that find a particular market or customer segment and fill a need that is not already there.  Unfortunately for these types of businesses, they may be successful as a niche business, but not a good candidate for VC funding.  Why?  They simply will not pull the revenue numbers expected of a VC funded business. 

Successful niche companies are sure to earn millions.  However, VC funded start ups are expected to eventually earn billions.  Thus, if you want VC start up funding, your new business must serve the needs of the masses.

You Need a Large Amount of Capital

Many new startup companies need only a relatively small amount of financing to get off the ground.  A few hundred thousand dollars or even a million or two will do the job adequately.  Unfortunately, venture capital firms are more interested in investments that require millions, and sometimes tens of millions, in capital needs.  A $500,000 investment simply will not give the VC firm the return it requires.

You Need Many Rounds of Financing

VC firms are looking to invest in startup companies from the ground up, which means potentially many rounds of financing.  For instance, a startup company may require seed financing and then many subsequent stages of funding until the business is ready to even introduce a product to market.  If your company does not need heavy market analysis, product development, and market testing, you may not be a good candidate for VC funding.

Entrepreneurs need to know where the best places to look for startup capital.  If you are a wise entrepreneur, you will carefully evaluate your new business to see if it is a good fit for VC funding.  If not, you would be best to focus your efforts on other sources.

What you state in your business plan says a lot about the future success of your business.  Venture capital firms have witnessed plenty of successful new businesses that started with a sound business plan.  VC firms know what should be included in a business plan – and what should not.  They also know the qualities that a business plan should possess if it is worthy of their time and money.

What are the qualities that VC firms like to see?  Here are 10 that should be in your business plan:

1. A Brilliant Idea

No plan is complete without a nugget of a great idea.  The idea is what sparks the interest of a VC firm.  The rest will solidify their interest, but it all starts with an exciting idea.

2. Brevity

VC firms don’t have time to review every business plan that is put in front of them.  Make sure yours is brief and succinct and contains the main compelling points that are of interest to a VC firm.

3. Clarity

Be absolutely clear about what your idea is and how it will achieve success.

4. Know Your Market

Do you know who will buy your product?  What are the demographics? How will you market to them?  Let your potential VC funding firm know that you completely understand your market.

5. Show a Large Market

VC firms will invest in startup companies with a potential for big earnings – which means having a big target market.  Show VC firms that your product will fit into a large market.

6. Your Competitive Advantage

Why will your target market buy your product rather than the competition?  This needs to be addressed honestly and with crystal clear focus so VC firms know why you set apart.

7. Existing Contacts

Have you already established potential partnerships with other successful businesses?  Do you have a top industry business ready to buy your product?  VC firms like to know that you already have potential help and customers waiting.

8. Management Team

The quality of your management team will be a top priority for VC firms.  Show that you have a team assembled with the best experience and qualifications.

9. Demonstrated Product Success

If your product has already been developed and shown sales potential, prominently display your sales success. 

10. Avoid Anonymity or ‘Hiding’

Don’t try to hide information a VC firm.  Your plan will more likely be rejected.

New and startup businesses may get their proverbial foot in the door of venture capital firms by securing a joint venture with another established and reputable company.  Venture capital funding is difficult enough to obtain as it is, but with the help of a big business name on your side, your business may walk to the head of the class in a VC firm. 

In most joint ventures, an agreement is drawn up between two companies or business owners to share in a business venture strategy and share the profits resulting from it.  A simple joint venture may be cross promoting a business or bundling products for merchandise sales.  A more complex joint venture might be the formation of a new company to pursue a separate business prospective.

In the case of trying to obtain VC financing, it may be just a simple category joint venture that gets you in the door.  Why?

Instant Credibility

Say you started a business manufacturing a new high-tech coffee or hot beverage holder.  If you approached the coffee giant, Starbucks, with a proposal to sell your innovative container exclusively in their stores and they agreed, you would then gain instant credibility with any venture capital firm by having the Starbucks’ name and reputation at your side. 

Or perhaps you have invented a new or innovative bottling process that has been picked up by PepsiCo.  Knowing the brand and market share that PepsiCo has on the soft drink market, your VC proposal could be a gold mine with the right capitalization.

Access to Large Markets

Though VC firms do not invest as much into retail businesses, you may have a green flag with your joint venture with a big name company.  They know that you would have access to a potentially large market with a company like Starbucks as your product distributor.  With a large market comes the need for expanded production and manufacturing, which would be a prime reason for the need of venture capital. 

An example of instant access to a large market is an innovative idea that could be used in conjunction with licensing agreements with the likes of Disney or comic book characters.  A new, innovative product like glow stickers or action figures could land you a joint venture licensing agreement with Disney or DC Comics.  With that green light for product development and access to an already established market, your chances at VC funding grow substantially.

Time to Market

Expanding into national and global markets takes time.  It takes time to get the marketing word out and time for the customer base and demand to increase.  That time span decreases considerably when you have a big name as a joint venture partner.  With the credibility and customer base already established, you can more easily convince a potential venture capital firm your need for capital expansion. 

When you are ready to take your new or existing business to the next level and want to try raising venture capital, don’t forget the potential and favorable possibilities with joining forces with an already established company. 

Not every entrepreneur who seeks venture capital should.  Many entrepreneurs starting or running a small business believe that the only source of funding they should seek is through a venture capital firm. 

However, what entrepreneurs must keep in mind is that VC firms are not banks.  If you need only a small amount of capital, say under $1 million, your best bet is contacting your local corner bank and getting a SBA backed small business loan.  If you’re after VC, then both your capital needs and growth plan should be big.

VC firms are typically in business to help startup companies with big growth potential get the capital and support they need to make it successfully on the market.  VC firms may finance as little as $500,000 and upwards of $10 million or more in a company.  However, for that price, they want their money back plus interest – and more.

VC Firms and ROI

A typical arrangement for a VC firm is to gain an ownership stake in a company in which they invest.  Depending on the amount of money invested and the total company worth, a VC firm may get a majority share in a company with full controlling rights.  But whether they are a minor or majority shareholder or owner, their intention is to relinquish their ownership stake and “cash out” at exit. 

Usually an exit strategy occurs at the time the company goes public with an IPO.  The VC firm exchanges their ownership stake for shares in the firm.  If the public shares take off and gain exceptional value, then the VC firm has gained a considerable ROI, which can be a staggering eight or nine figure dollar amount.

Big Ideas

However, to get such a large ROI, an invested company needs to be reaching for the sky at the time the VC firm invests.  The company must have realistic dreams of grandeur – one that must also be in high demand.  For example, a big business idea that attracts a VC firm might be a health technology product that will be needed in millions of health care facilities around the country or around the world. 

An idea doesn’t need to be an expensive product, but one that will sell to a wide market arena, resulting in large sales figures.  If you have an inexpensive product idea, be prepared to expand your business to access that larger market.

Big Expansion

A business may need capital not to develop a business idea, but to take their product or service from regional sales to a national or international level.  Capital is needed to make a big marketing push, as well as to expand production to meet the new demand. 

If you are currently vying for VC attention and funding, have a big plan in place.  Have a strategy to multiply your sales rather than small incremental percentages.  With the help of VC funding, however, you can take your business to the highest level.

The job of obtaining much needed capital from a venture capital firm can be long and arduous.  With this in mind, could hiring a venture capital consultant help you obtain the best possible chance in front of a VC firm?

VC consultants are those who have had experience in the venture capital industry.  A consultant may be a former venture capitalist himself, a previously successful entrepreneur, or someone with many contacts in the VC field.  Through the help of a VC consultant, a small or startup business may get the guidance it needs to become a hit with a VC firm.

VC Consultant Costs

What is the potential cost of a VC consultant?  Some consultants charge as much as $1,000 per day for their proven experience and contacts.  However, when a company is looking to raise $5 million for capital leveraging, $1,000 a day is a small investment indeed. 

Along the lines of VC consultants are rumors and reports of those who want an ownership stake in a business in lieu of a fee.  It is best to avoid paying a consultant this way, as you know in advance that a VC will also want a large ownership stake in your company if successful.  A trustworthy VC consultant knows this and would not ask a startup for this type of compensation.

What a Venture Capital Consultant Can Do for Your Startup

An experienced and good VC consultant can help your business obtain VC funding in many ways.  Here are the main areas that could help you:

• Contacts – VC consultants usually have many contacts in the industry.  They can recommend the right list of potential venture capital firms for your industry, or find the right ones if not known right offhand.

• Business Plan Review – The business plan is the main document that gets you in the door of a VC firm.  A consultant will work with you to revise and re-write your plan so that it will be most attractive to a VC firm.

• Market Research – If your business is a startup and you need market research to firm up statistics and market potential, a VC consultant will help you down that road.

The Bad and the Ugly

Within any industry are vultures who wish to take advantage of unsuspecting or desperate people.  The startup and VC industry is no exception.  Naïve entrepreneurs and small business owners who are desperate to obtain large amounts of capital funding may get the “blown away” routine from an unethical consultant, even if the business idea is bad.  That means a consultant will look at a potential business plan and idea and tell the entrepreneur that they are “blown away” by the idea.  These consultants will go on to virtually guarantee VC success. 

If you, as an entrepreneur, wish to go the route of hiring a VC consultant, be sure to remain savvy.  Research potential consultants.  Check references.  Verify previous success.  You want to find a consultant who will not blow smoke and give you false hope.  A consultant who is honest and forthright may be the best investment on the journey to obtaining venture capital.  Even if the result is “you don’t have a chance,” it still saves a lot of potential money spent pursuing the false hope of VC success.

Since venture capital is not easy to obtain, it can be helpful to hire a consultant to give you the guiding map toward successful capitalization.  However, be sure to research every potential consultant and hire the one best suited for your business.

The list of entrepreneurs who want to start a business and obtain venture capital financing is almost endless.  And the number of different types of businesses and industries are almost as numerous.  However, a savvy entrepreneur who wants to get a hefty check from a venture capital firm will look closely at the main industries in which these firms like to invest.  Here are the top 4 industries VCs invest in, according to PricewaterhouseCoopers (PWC):

#1 - Software

Even since the dot com boom and bust in the early 21^st century, VC firms continue to be most heavily invested in software companies.  However, no longer are unproven business models the norm, nor are the large amounts of total capital invested.  New and emerging software products, whether internet based or custom installed, must have a niche market or be able to obtain a good share of an established market. 

In addition, according to the PWC study, the tens of billions of dollars invested in the software industry in 1999 and 2000 have dwindled to only $5.5 billion in 2007.  And despite slow and steady growth in VC investments since 2003, it appears that the stagnant economy will present a drop in total 2008 and 2009 investments.  Only $4 billion was invested in software companies by the end of 3^rd quarter 2008. 

#2 – Industrial/Energy

The number two VC invested industry is the only one continuing to grow through a down economy.  $3.2 billion was invested in new energy technologies in 2007, and already before the end of 2008, $3.6 billion was invested in new energy technology companies. 

The growing concern for the economy and the larger demand for “green” products have fueled this industry, and venture capital firms are taking note of the potential profit rainfall with new energy companies. 

#3 – Biotechnology

Although still one of the top four VC industries, biotechnology fell the hardest between 2007 and 2008.  $5.2 billion was invested in biotechnology firms in 2007, but by end of the 3^rd quarter of 2008, only $3.6 billion was invested. 

Biotechnology firms use biological substances to perform specific industrial or manufacturing processes, such as pharmaceuticals, bulk food production, and the bioconversion of organic waste.  Despite the drop in VC financing, the biotechnology industry is still expected to continue its high growth.

#4 – Medical Devices and Equipment

Dropping from 3^rd place in 2007 to 4^th in 2008 is the medical industry.  New technology for medical equipment and devices dropped in demand in 2008.  It appears that the economy has affected existing companies who currently produce new medical technology, with many corporations laying off workers in order to navigate through the struggling economy.   However, even through tough economic times, the medical device and equipment industry still is strong.  Venture capital firms invested about $2.8 billion by end of 3^rd quarter 2008 into the industry.  This amount is far ahead of the next straggling industries of IT Services and Media & Entertainment, with only $1.5 billion invested by 3^rd quarter end 2008.

Entrepreneurs who are most likely to obtain VC funding should take a look at these popular industries.  Venture capital firms invest more in these top four sectors than all other industries combined.  And despite the lagging economy, these industries still look to be the top four for 2009.

Women entrepreneurs have been steadily decreasing the percentage gap found between females and predominantly male entrepreneurs.  Even as the 20^th century came to a close, only 9% of institutional investments were given to women entrepreneurs.  However, within the last decade, women-owned businesses have become a prominent mark in the venture capital scene.

Networking Through the “Boys’ Club”

Why has it taken women entrepreneurs so long to gain their share of venture capital?  Even though women business owners are excellent at networking, they have historically lacked the contacts in the financial community.  The financial industry has been predominantly run by men who provide financing to others in their “good ol’ boy” network of friends and business acquaintances.

But as networking through the internet became more prominent, and as more women received VC funding, the financial network has expanded further into women entrepreneurial ventures in the 21^st century.  Businesses owned by women are as financially secure and profitable as any average U.S. business firm.  But yet, women still have difficulty securing VC for their new business ideas.

How can a woman entrepreneur shore up the networking holes and find their place in front of a VC firm?

Network the Financial Industry

Women must be able to network not only among other women business owners, but with all who are involved in the financial market.  Expand networking possibilities with other entrepreneurs, men or women, who have successfully won venture capital funding.  Talk with others who are connected with the VC industry.  A local entrepreneur club may be a great way to share ideas and get venture capital contacts for financing your business.

Study the Main VC Industries

VCs invest heavily in technology businesses.  Many women entrepreneurs have a great retail business idea, but find it difficult to obtain VC funding when there is no model for large scale expansion and sales.  If you want to get a business kick started with venture capital funds, be sure to study the industry of your business idea and discover if it is likely to be viewed favorably among VC firms.

Strengthen Your Idea

As with any entrepreneur or company vying for VC funding, your business idea must be solidly defined, marketable, and in demand.  Discover a niche for your business idea that will allow your company to experience potentially huge sales.  This may take time, trial, and error to narrow and focus your business idea to where it is attractive to venture capital firms.

Assemble a Winning Team

In order to give your business an edge in getting accepted for VC funding, you must have a winning team in place before you approach VC firms.  Take the time to assemble a list of potential managers, directors and executives of your company that have the right experience in their industry and preferably in other startup companies as well.

To win in the venture capital funding game, women must play by the rules set by men.  Most startups that make proposals to VC firms were recommended by other contacts in the financial industry or by other portfolio investment companies.  Once you solidify your high-potential business idea and management team, get in the network and find your place in front of a VC committee.

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!