Are you an entrepreneur with a business idea?  If you need access to large funding amounts to start or grow your entrepreneurial endeavor, you may look to a venture capital firm for seed money.   To increase your chances of securing funding, it is important to understand what venture capitalists seek.    

1. Enthusiasm and Passion

Beyond a great business plan and business idea is the person(s) behind it.  VC firms don’t just lend money to a business.  They invest in a person or team who can make the business work. 

Of course, it helps to have a pedigree of business experience and trail of success.  Showing that you have succeeded in the past or extensively understand your industry is a good starting point.   However, venture capitalists know that the entrepreneurial ventures that succeed are the ones with a leader who is enthusiastic.   You and your leadership team need to be passionate about your business idea and growing your little company to great heights – and have an ability to clearly show that passion to your VC firm.

2. Dedicated Focus

Your experience and passion should also translate into a commitment.  An entrepreneur who is committed to his or her business watches the evening news and determines how events may affect the business.  With commitment comes pinpoint focus and a plan to make it work.  Show your venture capital firm that you have a plan and are focused in achieving your goals.

3. An Exemplary Team

One person does not a business make.  A great leadership team is needed to help lead the entrepreneurial venture in all areas, including finance, marketing, and human resources.  Assemble a team who has proven experience and success in their area of expertise.  A good team will also share your enthusiasm and focus in making the business succeed.

4. Unique Innovation

Highlight your innovative difference to VC’s.  Aside from the people who run the business, venture capitalists also look for innovative issues that make your product or service stand out.  Don’t just create another proverbial mousetrap.  Develop a business product that is not currently on the market or has unique qualities compared to existing products.  You could also develop innovative production techniques or marketing strategies. 

5. An Outstanding Product

Finally, a venture capital firm will want to invest in a business with a great product or service idea – one that will grow into a big hit with consumers.  Only with tremendous growth can a VC firm expect to make their return on their investment.  Make sure you develop a product or service that has big potential for large markets if you want VC funding.

The economy is gloomy – but not so gloomy that venture capital firms are holding off from making investments!  Entering a market segment may be tough to acquire new consumers who are saving more than spending, but VC firms are saying that a good business idea is always a good investment option for them, even in tough economic times.

Experienced VC firms know that there is always consumer interest in a great product or service.  However, a startup company may have a tougher time acquiring VC funding due to the larger amounts of capital needed.   In today’s economy, venture capital firms are choosing fewer startups and focusing only on those who have the best chance at survival.  Many VC firms are widening the gap from startups and investing more in Series A or Series B stage companies that have a proven track record of success.  

Why Business Stage Matters

Startup companies are still in development, adding members to the leadership team, performing market research, and performing product development and testing.  Usually there is no revenue coming in, but large amounts of capital are needed from VC firms to continue the business launch.  Due to the risk of failure or delayed success, and the higher potential of loss on a large investment, VC firms look more toward Series A or Series B financing.

Smart and savvy entrepreneurs should be able to build a team, develop a product or service, and launch their business without the need for VC funds.  Even if it means bootstrapping and raising capital from friends, family, and partners, there are ways to acquire funding to get a business off the ground.

Once a business launches and gets initial traction, there is better potential for success.  Management is in place and employees are working.  Business is coming in, but profit may not yet be experienced.  It is at this Series-A stage that many VC’s will take a look at new businesses and invest with less risk than a true startup.

Series-A vs. Series-B Funding

What do you need in your Series-A business to acquire VC funding in contrast to a more experienced Series-B business?  Hope!  In a Series-A stage, companies have not yet reached their full potential, and therefore, hope for significant profits and growth still exists.    

Series-A funding can help a business take off into breakeven territory and even profitability.  Funds from Series-A financing are generally used to increase productivity, cut costs, build infrastructure, and push distribution and sales. 

With a growing company, a VC firm can receive a greater return on their investment than with an already profitable Series-B company.  If you have hope, you can gain respect by building a company from the ground up and keep the momentum going.  And that hope can translate into a successful VC financing effort.

Your search for venture capital should be focused and directed at particular venture capital firms that stand the greatest chance of helping your business succeed.  Thousands of VC firms exists and are located all over the country.  Each one has specific elements they look for when distributing their VC funds.   How do you choose a potential group of venture capitalists who are most likely candidates for accepting your business proposal?

1. Location

Location may be an important key element for a VC firm.  A VC firm may only invest in companies that are within proximity of the VC headquarters.  It may be 100 miles or perhaps 500 miles.  If proximity is not relevant to a particular VC firm, they may also choose potential new businesses that are only located in larger metropolitan areas.  Know the geographical limitations of your potential VC firm before submitting a business plan for perusal.

2. Sector

What is your business type and what sector will you serve?  Many VC firms have specific business sectors that they will invest in, such as high-technology or healthcare.  When looking at a pool of potential venture capital firms that you would like to pitch, narrow your pool to those that invest in your business arena. 

3. Business Stage

In what stage is your business?  Startup?  Expansion?  VC firms will often specify that they only invest funds in startups, or maybe just in companies who need a money bridge before an IPO. 

A startup company puts the VC firm in greater risk for loss due to the potential for failure.  However, the returns and rewards are better when they do succeed.  Conversely, some VC firms will invest conservatively in already existing businesses with a proven track record, but is ready to make a large growth effort.  Know which stage your business is in and seek VC funding from groups that focus on your stage of growth.

4. VC Partners

Most venture capital firms are financed by investing partners.  Know who the partners are and which areas of experience each has.  By choosing a VC firm with partners who have experience in your business idea, you may have a better chance at getting accepted for funding.

5. Portfolio

Take a look at the investment portfolio of a VC firm.  You may find that they are diversified in a number of different market segments, but some may have primary sectors in which they invest.  Try to find a firm who has invested in businesses similar to yours and were successful.  Good experience in an industry could determine that they will continue investing in that industry with your business.

6. Assets

If you are an entrepreneur with a startup business who needs many cycles of capital funding, take a look at VC firms with adequate assets themselves.  You may need early stage technology development, marketing research funding, startup funding, and then progress onto first or second stage funding.  Make sure your potential VC firm will be able to follow your business along its path of success.

Venture capital is not necessarily given to the entrepreneur with the most extensive experience or the best ideas.  Instead, venture capital is often awarded to those professionals who learn to toot their own proverbial horn.  After all, venture capitalists won’t know that you are an authority unless you tell them.

Don’t be shy about your experience.  It is likely that you have special and focused knowledge about your industry based on your past education and work history. If you are trying to form an entrepreneurial business with venture capital in mind, you need to lay out all this information so venture capitalists can see why you are the best person for their investment dollars.

What Good is Demonstrated Expertise?

What can your demonstrated expertise do for you?

• Labels you as an authority

• Increases your visibility and value

• The better known you are, the easier it is to attract business

All of the above qualities are what venture capitalists seek in entrepreneurs.  Venture capitalist groups want to provide money to people who have solid experience, along with the business acumen to secure customers and succeed.  If you have proven past success with an innovation or are an authority on a particular business issue, you can bet venture capitalists want to talk to you about your entrepreneurial ideas.

How Do You Acquire Expertise?

How did you become so successful in your field?  Did you work in your industry for 10 years?  20 years?  Did you get special schooling or an advanced degree?  There are many ways you can tout your expertise:

Further knowledge – Many entrepreneurs have taken the time to gain extensive knowledge from universities in the form of advanced degrees.  However, you don’t always need to get a second PhD.  You can gain knowledge by reading, researching, experimenting, or even working in a special classification in your field or industry.

Leadership position in your field – People with expertise are often sought after for leadership positions in groups and organizations.  Be sure to note any role you played in your industry’s leading clubs.

Trailblazing a new field – Have you discovered a new innovative method in your industry?  Whether you create a better way to manufacture a mouse trap or streamline a particular business process, if you can claim a role in such trailblazing methods, you can demonstrate your expertise.

If you are forming an entrepreneurial business and are looking for financing through venture capital, be assertive in your experience.  Claim your rightful position as an expert and an authority figure.  Convince a venture capital group that you are the one to lead your business, and you will have a better chance of securing that financing

Who are angel investors? Historically, angel investors were affluent individuals who financed theatre productions. Today, angel investors are typically wealthy private investors who, acting alone or in organized groups called “angel networks” invest their own money in revolutionary business ideas, usually in exchange for ownership equity. Generally, the range of angel investor financing is US$25 000 to US$100 000 for an individual and up to US$1 million, or more, when acting in an angel group.

So, does your idea of a product or service fit the angel bill? Maybe. Nonetheless, don’t deem your idea worthless just because it may not be “revolutionary” per se. Most investors realize that true revolutionary business ideas are a rarity. The bottom-line is money. Angels are interested in innovative ideas, new or improved that can generate significant returns. Given this, if you have a good business idea and are looking for funding, an angel may just be the equity partner you need.

But, how do you convince an angel investor that your business venture is the next best thing since sliced bread? In short of a miracle, this feat may seem impossible. Well, impossible it is not, but let’s be honest here, it’s certainly not easy. Before you ask for funding, it is critical that you understand exactly what it is that an angel investor seeks in a potential business opportunity. Consider the following 10 angel “look-fors”.

1. A product or service that fills a MAJOR market need (a business idea that solves an existing problem)
2. Competitive dynamics (the uniqueness of your idea and the competitive advantage over like products in the marketplace)
3. Market size (the bigger the better)
4. Market penetrability (the ease with which the product or service can be brought to market)
5. Sales plan (how will you turn your idea into money)
6. Use of capital (how will you spend the money you get)
7. Numbers (do the math to make sure everything adds up)
8. A promising future (long-term financial projections)
9. An exit mechanism (an easy way of “cashing in” on the company)
10. Entrepreneurial spirit (passion, confidence NOT arrogance, and perseverance)

So, before you call upon an angel for help with your funding needs do your research and know all the facts.

Good luck.