If you have previous experience and success as an entrepreneur, then venture capitalists may be looking for you.  Whether you started a local lawn care business or developed a strategic new software application, your savvy entrepreneurial business experience is a plus in the minds of VC firms and could result in securing funding for your next business venture.

Venture capital firms are very particular when it comes to lending money to new businesses.  They expect their money back with exceptional returns, and therefore, only companies that have the potential for great success are at the forefront.  When approaching VC groups, be sure to highlight your previous success.  It could result in getting the funds you need to get your new business flying.

Why do previous entrepreneurs have a better chance with VC firms?  Here’s how you can spotlight your experience:

Innovation

Did you create an innovative new product or develop a new business process?  Your technological creativity can be a key in the success of your new business.  According to the great management expert, Peter F. Drucker, innovation is:

“The specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service.”

Show the venture capital firm how you have revolutionized a business process or exploited change as opportunity.  If you’ve done it before, you likely can do it again.

Management

Drucker also states that, “management is the new technology that is making the American economy into an entrepreneurial economy.”  Previous management experience, particularly in conjunction with a previous entrepreneurial venture, lets venture capitalists know that you can lead successfully.  Give a full account of the success of your previous management, such as how you hired and retained good employees, or saved money by reducing the cost of production. 

Marketing

If you were a previously successful entrepreneur, then you must have found a market somehow.  Note the creative and focused marketing techniques you used to gain new and returning customers.  With your knowledge of marketing techniques that work, venture capital firms can see that you know how to fill a niche and attract the right customers. 

Growth

Particularly if your previous entrepreneurial venture was successful, demonstrate to venture capitalists just how much growth you experienced.  Quantify your financial results using charts and graphs.  Show how your business entered new markets through your own growth plans and through any joint ventures in which you engaged.  Remember, VC firms want to know that the companies they invest in will grow and prosper.  Prove to them that you are perfect for the job. 

Entrepreneurs are people with big ideas and big dreams.  Likely, if you are reading this, you have some kind of entrepreneurial dream that you are pursuing.  In your process of growing a new business and obtaining funding from venture capitalists, make a strong note of how you can bring success to your company with your history of entrepreneurship.

Though you may have a stellar business plan and gained the interest of a venture capital firm, you need to prepare for your presentation.  Many entrepreneurs vying for VC funds are turned down at the pitch stage.  Why?  They were unprepared and did not deliver convincing answers to questions.  You can avoid this pitfall by preparing adequately for your pitch with these following strategies. 

1. Rehearse, rehearse, rehearse

Stage performers don’t confront a paying audience after one or two dress rehearsals.  They plan every move, every emotion, and practice each scene time and again until it flows freely and naturally.  Do the same with your presentation.  Practice it until you know the information you want to deliver intimately and can present it comfortably.

2. It’s in the eyes

Nothing is worse for a venture capitalist firm than to watch an entrepreneur who fails at public speaking.  In order to grab the attention and excite your venture capitalists, you need to show excitement and enthusiasm yourself.  When you practice your pitch, also practice your emotional delivery.  You don’t need to speak loudly, but do speak in a good audible tone.  Show your excitement in your face, particularly the eyes.  They will be watching you.  Your enthusiasm can spread to your VC audience.

3. Share the stage

Don’t do it alone.  Try to get everyone on your leadership team to make a part of the presentation.  Different segments of your plan could be divided, such as the financial section or the marketing strategy.  The more your VC audience sees all members participate, the better they will understand everyone’s enthusiasm for your endeavor.

4. Prepare for Q & A

Rarely does a practiced presentation go from point A to point Z as rehearsed.  Expect your VCs to throw questions at you and your team members as you proceed with your pitch.  Oftentimes, a question will arise that will be answered in an upcoming portion of your presentation.  You could give a teaser of an answer, but you may simply and politely inform the questioner that his or her question will be answered in detail in an upcoming point. 

After a presentation, there will usually be plenty of questions from your potential VC group.  You will best be prepared to deliver answers by knowing your facts and figures as best you can.  However, don’t stumble if a question is raised for which you cannot provide an answer.  Simply be honest and inform that you do not have an answer at the time, but will follow up after the meeting.  However, don’t forget to follow up.  Be sure to deliver an answer by email or phone call to the individual or group. 

Getting ready to deliver a presentation should take plenty of preparation time.  You’ve spent the time focusing your business plan, but a live presentation is where you will deliver the emotion and enthusiasm of your entrepreneurial venture.  So be excited, get them excited, and invite them along for the ride. 

How you sell your product or service is an important issue for venture capitalists.  Anyone can have a great product or offer a super service.  However, only those with clearly defined target markets and channels of distribution will have the ear of a VC firm.

Target Your Market

Knowing your target client base allows you to develop a target market strategy.  Show your marketing strategy to VCs in three steps:

1. Market research - Finding a market for your product or service requires research, particularly if you have a great potential niche product or service.  With proper market research, you can determine exactly your target market demographics, such as age range, income, education, etc.

1. Analyze demand – In your business plan, display target market demand patterns.  Does your niche fit in a more homogenous or focused sector?  Or will you need to reach a more diffused demand? 

1. Approach the market – Show VCs how you select and approach your target markets.  Will you follow a mass market approach?  Or focus different marketing strategies on more specific market segments?

If you have already performed market research, you are a good step ahead and can formulate a market approach to present to your VC investors.  If not, VC funding can help your business get the proper research in order to get the data you need to make a targeted approach.

Distribution Channels

If you know who your customers are, then it is easier to determine how to get your product or service to them.  Even if you do not have the research data needed to make a full target market strategy, you can begin the process of determining your distribution channels.

To determine your distribution you need to know your product well.  Will it be something typically purchased at a grocery store?  Will you need a sales agent?  Or can you sell direct?  Below are typical distribution channels.  Relay to your potential venture capital investors how you think your product or service will use the following:

• Direct Sell – You may want to sell your product or service directly to customers.  If you do sell directly, will it be through internet sales?  Or will you need a brick and mortar store to display goods?  Selling directly can save money on “middleman” distributors, but requires much more effort on marketing and customer service.
• Agency – An agent is someone who works on your behalf to sell a product.  An agent could be a direct hire who works only for you, or an independent contractor selling on behalf of many clients.  An agent is usually a good and convincing salesperson and has access to good leads.  Though you may sell more through an agent, they usually work on commission, or for a portion of the sales they make for you.

• Distributor – A distributor is the “middleman” wholesaler who sells to multiple retail markets.  A distributor can save a lot of money on direct retail selling and delivery.  Of course, your product to the end consumer will be marked up by the cost of the distributor and the retailer markup.

• Retail – Retailers are dealers or resellers who carry many products sold directly to consumers.  If you want to avoid a wholesale distributor and sell directly to retailers, you will need a way to transport or deliver services or products. 

Before making a presentation to a venture capital firm, spend time on how your product or service ends up directly to consumers.  Knowing in advance, or at least having a good idea, allows you to plan your marketing strategies and reach your consumers.

Starting a new business requires significant decisions.  One of the biggest and most important is the business structure, especially if you are looking for venture capital funding.  Your business structure is the legal form it takes in operation.  As an entrepreneur, you need to carefully consider the different options so that your business will most likely succeed.

In order to focus on a proper business structure, you need to ask yourself some important questions.  Do you want to avoid personal liability if the company is sued?  How do you want to pay taxes?  Will you have a partner?  Will your business operate on a national or international level?  Questions like these can help you choose the right business structure.

Below are the most popular business structures that operate in the United States.  Take a look at the pros and cons of each to determine which one is ideal for your start-up venture.

Sole Proprietorship

Most small businesses are a sole proprietorship.  A sole proprietorship is a one-owner business.  The owner and the business are inseparable.  Though the owner reaps all benefits of the business profits, he or she is also liable for all debts, taxes, and potential legal judgments.

Depending on the state, a sole proprietorship generally does not need to be a registered business entity.  However, registering a business name with the Secretary of State in which you conduct business is wise.  Also, acquiring all necessary business licenses should not be overlooked, even with a sole proprietorship.

Partnership

A partnership is similar to a proprietorship, only there are two or more business owners.  A written agreement is not required, but should be drawn up for the benefit of the partners.  With any partnership, federal and state income tax is “passed through” to the partners who are liable for the taxes on earnings.  The partnership itself does not pay taxes.

A Limited Partnership (LP) is a type of partnership that requires complicated paperwork and state registry.  A limited partnership is usually run by one “general partner” and has one or more “limited partners.”  Limited partners are usually the investors who do not participate in the day to day operation of the business.

Corporation

A corporation is a registered legal entity that is separate from the owners and prevents the owners from having any personal liability in company debts or judgments.  However, a corporation must pay taxes on corporate profits, and all shareholders must pay taxes on dividends earned through the corporation as well. 

There are three main types of corporation:

• Private corporation – This is a company that is registered with the state of headquarters and is owned by private investors.  Each investor purchases a “share” in the company.

• Public corporation – This type is seen on public stock trading markets, such as Dow Jones or NASDAQ.  Investors also own shares in the company, but publicly traded companies have a great deal more federal regulation.

• Non-profit corporation – A non-profit organization is a type of corporation that performs charitable, educational, scientific, or religious type of business.  There are no “owners” who buy stock, but the company is overseen by a board of directors.  Non-profits can raise funds from grants and donations and do not pay taxes since there is no “profit” on the operations.

Limited Liability Company (LLC)

An LLC has elements of both a corporation and a partnership.  Like a corporation, an LLC is must file its entity through Articles of Organization with the state Secretary of State.  Owners of an LLC are “members” who have limited liability, but have a say in how the company is run.  However, similar to a partnership, all profits are passed through to the members, who then must pay the government on their share individually.  The LLC structure has become one of the most popular types with its easy form of ownership and tax status.

For tax, liability, and venture capital funding reasons, it is important to choose a business structure that will serve your endeavors well in the present and into the future.  Generally, corporations or LLCs are most ideal for securing venture capital, as you give your business room to grow and gain market share. 

Where will your business be located?  This decision is one that must be made carefully.  The geography of your business headquarters, as well as the state of the legal business entity’s registration, may make the difference in whether your company will receive VC funding.

Many VC firms have specific guidelines and policies that not only determine in whom they invest, but also where they want to invest money.  And it may have nothing to do with your business idea.  A quality business that fits VC guidelines, but not the geography, may not be chosen as a funding option.  Therefore, you should always know in advance whether a VC firm has specific geographical guidelines.

Why is location so important?  Below are some of the typical reasons VC’s have geographical limitations.

The Cluster Effect

Why is it that most software or technology companies are located in the Silicon Valley in California?  Since the late 1990s, tech firms have clustered around the Silicon Valley area.  Giants like Apple and Google are headquartered there.  Some say that the locale provides the best talent, and thus, tech firms have the best chance to succeed in that area.  A VC firm may determine that if they invest in tech or software business, it will be only in the northern California area.

A Balanced Investor Portfolio

Venture capital firms also have investors to whom they must answer.  Investors that contribute money to a venture capital firm want security in knowing that not all their proverbial eggs are in one basket.  Subsequently, a VC firm will balance a portfolio over a geographical range.  If one region of the country hits on hard economic times, other businesses in different areas will pull the slack from disappointing results elsewhere.

State Laws and Regulations

Have you ever wondered why so many financial and credit companies are located in Delaware?  The corporation laws of that state are the most relaxed in the country, and they allow financial firms much flexibility in managing corporate policies and interest rates.  Since interest rate limits that a company may charge are based on the legal state entity status, many financial companies choose Delaware in order to charge higher rates.

The state you chose to register your business can be a key decision.  Like the example above, a financial firm will have greater options if they become a Delaware corporation.  You should determine how your business operations will best succeed in a perfect world of little regulation.  If you discover that the state you currently reside in does not offer the flexibility you require for your business, consider registering it in another state.

Venture capital firms can be picky about what businesses they chose to invest in and in what states they operate.  Usually a VC firm will know the best regions for a particular business.  Take a look at your potential set of venture capital firms and research each one to know what regions they prefer and by what type of business.  Your state headquarters could make the difference in obtaining much needed venture capital funds.

Many entrepreneurs are currently worker bees in a “day job.”  Working for another boss is still the norm, but would-be entrepreneurs have the type of personality that desire to be their own boss.  However, should an entrepreneur quit a day job to completely invest into a new business?

It is common for many entrepreneurs to continue working a full time job while developing and growing their own business.  An entrepreneurial venture does not always provide an income at first, and with a mortgage and kids, the regular income from a day job is important to maintain. 

However, some entrepreneurs argue that without devoting a full time effort into growing their business, it will not get off the ground.  Particularly with a new business, you need to invest much time and effort into marketing, growing contacts, and making sales.  With no money to hire extra help, an entrepreneur must take charge of all the duties him or herself.  Sometimes the reward to exerting full effort in a business venture is the realization of a regular income much quicker than a part time endeavor.

The real question to whether an entrepreneur should or should not quit a day job depends fully on the circumstances of the individual.  Some things should be considered:

Do you have large financial obligations?

Many entrepreneurs are married with families and a mortgage, not to mention all the credit card bills that have financed much of his or her entrepreneurial efforts.  If this is the case, a regular income from a day job may be essential.

Are you looking for venture capital financing?

Sometimes a venture capital firm does not want to support a business when the entrepreneur is not working at it full time.  It may show that the entrepreneur is not confident in the success of the business.

However, with the help of VC financing, it is possible for the entrepreneur to devote full time into the startup business.  In any case, an entrepreneur should disclose the reasons to a venture capital firm for not quitting a day job.  People do understand that financial obligations must be met.

Do you have adequate savings?

For anyone quitting a regular full time job, it is usually recommended to have savings to support minimally three to six months of no income.  Many young entrepreneurs are able to drastically reduce their expenses while endeavoring to build a new business and can live off of little savings.  Another possibility for a confident investor is to cash in on stock options or other investments to help pay bills during the transition from full time job to full time entrepreneur.

Ultimately, the confident entrepreneur will find a way to succeed.  Whether it may be from living paycheck to paycheck while a business grows, or living cheaply while devoting full attention to a business venture, the entrepreneur who will succeed will be the one who weighs these options carefully.

Most entrepreneurs have a very slim chance of obtaining the attention of a venture capital firm.  A VC firm may have up to 5,000 business plans sent to them every year.  In fact, only about 2% of the thousands of businesses who contact venture capitalists ever get a chance to interview and make a presentation.  With this in mind, how can your business be one of the few and the proud that VC firms will ask to present to them?

Getting the attention of VC’s is not as difficult as it may seem.  Just like book publishers want the next #1 bestseller or a movie studio wants the next blockbuster, the same holds true for venture capitalists.  A VC firm wants to lend out money and be part of the next big business idea.  The trick is organizing all your proverbial ducks in a row, having all the “T’s” crossed and “I’s” dotted, and of course, presenting a fabulous business idea.

Have a Stellar Team Lined Up

Your leadership team for your new business needs to have a stellar set of resumes.  Venture capital firms will want to back up a business with a seasoned team of leaders who are experienced and leaders of their respective industries.  It also helps to have leaders on your team who have successful experience in start-up or new businesses.  

Not everyone on your leadership team should have the same background.  Your business needs managers who can generate sales, manage finances, develop new ideas, and handle all the administration of a business.  Assemble a management team that can cover the spectrum of business needs.  Before they feel confident in lending money to your business, they need to feel confident that your leaders can handle the ongoing struggles of growing a new business.

Formulate Solid Financials

If a VC firm will notice your business, they need to see that your financial data is well thought out with solid backup to support projected revenues and expenses.  If your business can show through market research and other data that the demand will grow and revenues will increase, you’ve already secured their attention. 

Your financial data should also be presented so that it is easy to understand and view.  Spreadsheets are nice and organized, but don’t ignore the effectiveness of graphic design.  Use bar and pie graphs.  Make spreadsheet numbers easy to read.  Use bold headings, solid lines between data sets, and keep the matrix relatively small.  No one wants to decipher a chart with 20 or more lines. 

Demonstrate Your Passion

Venture capitalists want to back new businesses that will work and succeed.  If they can see that you and your team are committed and passionate about making your business succeed, they will want to speak to you.  Your passion for your new business will show in the care you take in forming your business plan, your market research and financial data, and the well thought out business idea and niche you will fill.  Show them you have the right assets, and the venture capitalists will give you their attention.

You’ve spent days, even weeks, writing, rewriting and firming up your business plan so that it will shine in the eyes of a venture capital firm.  Even though your executive summary is not the longest section of your business plan, it does warrant a great amount of your attention.  Remember, it is your executive summary that will attract the attention of the reader.

The executive summary is the opening section of your business plan, providing a high level view of your business idea and strategy.  It is what venture capitalists will read first.  Based upon the summary, most venture capitalist firms will decide if they want to know more about a company or simply toss the plan based upon this short introduction.  Subsequently, you should take special care in perfecting the details of your executive summary. 

The details of your executive summary should include:

Mission Statement – Summarize this statement into one or two very clear and succinct sentences.  Every word you use should be chosen carefully so that you present not only the business mission, but the emotion of succeeding in that mission.

Product or Service Overview – What is your business?  Provide a brief overview of what your product or service is and why customers will want to buy it.  Expand the overview to include how your product or service fills a particular niche.

Your Market – Who will buy your product or service?  Let your potential venture capitalist investor know exactly what market segment will be interested in your product or service and why they will buy yours over the competition.

Achievements to Date – If your business has been operating successfully for a period of time, or if you have successfully raised other startup capital, list these achievements in the executive summary as well.  A VC firm will like to know that you have taken initiative in obtaining other sources of capital and that the business has been steadily operating and growing up to this point.

The Obstacles – Every business needs to have a clear and realistic view of the obstacles it may encounter.  That means listing the competition and how you plan to succeed in joining the market segment.  You should also list other barriers to entering the business arena, such as technology patents or economies of scale.

Financial Summary – Briefly entice venture capitalists to read the full financial section.  Chose a few key graphs or charts that show your profit and revenue growth over time.

Management Team – Also briefly introduce the top management team (including yourself) who will be growing the business and making it succeed.  In a sentence or two, explain why they are the best choice to fill their position.

Your meeting with a venture capital firm depends on a clean and well written business plan.  The only way to get a VC firm to read your plan is to make sure they get past the initial business summary.  Spend the time to edit and re-edit your executive summary so that it is the highlight of the business plan. 

When you began your entrepreneurial venture, you most likely had a simple yet vague concept, such as, “I want to build a better to-go coffee cup,” or “I want to offer software solutions that streamline the construction bidding process.”    

Since then, you have performed due diligence, interviewed other business owners, conducted market research, had new thoughts about your business, and solidified your concept.  It is now time to clarify and crystallize your vision and commit your mission in writing before you present it to venture capitalists.

Formalizing your mission and vision is not a quick process.  You need time to write down ideas, revise them, share them, and finally produce a succinct written statement about how your business will operate and what will happen in the next five years.

Brainstorm and Draft Ideas

Take time to brainstorm how your vision will translate into your business.  How will it operate?  Who will run it?  How will it profit and sustain? 

Writing down your ideas also unleashes your creativity.  It helps you define the choices of your business and the results you want. 

The process of writing down your ideas and goals also helps solidify your commitment to your vision.  Studies show that people who succeed more are those who have written goals.  This certainly bodes well for your efforts in securing venture capital!

Edit and Refine

Once you brainstorm all of your ideas onto paper, it is then time to refine them into a coherent system of sentences.  All the drafted ideas you retain should be ones that reflect your core system of values for your business.  Chose the ones you know are important to you and how your entrepreneurial venture should be envisioned.

Do not formulate a term paper or novella sized mission and vision.  You will need to make tough choices to keep your statements short, succinct, and to the point.

Share with Others

When you have a good first (or second) draft, you should pass copies around to your business partners, associates, and others you trust who could offer helpful and constructive suggestions.  Other sets of eyes can spot grammatical errors, poor word choices, and perhaps provide deeper insight to your mission and vision statement.

Finalize and crystallize

Take time after your revisions and suggestions to incorporate everything into a crystal clear final draft.  The version you want to show the people who may finance your endeavor should be articulate and reflect your positive enthusiasm for your new enterprise.  If done correctly, it should also motivate venture capitalists to want to see your vision fulfilled and help you make it happen.

Venture capital (VC) funding has been around for decades, funding some of the most famous companies, including Google and Apple.   In order to succeed in obtaining VC financing, you need to convince the firm or group that your business will succeed in making a profit in a short amount of time, usually three to five years.

How does a VC firm decide to invest in a business?  They will invest in a business that has the best chance of making the aforementioned profit.  To secure the funding from venture capitalists, a business needs clearly demonstrate a solid and viable strategy.

Do the Research

Your new business needs to have a market base.  Who will your customers be?  You need to know exactly who your target clients are before you meet with a VC with a funding request.  Do the market research necessary to get a clear picture of your customers and know that your business idea is viable.

Fill a Niche

Your business needs to be different from the competition.  A VC firm does not want to finance another “software solutions” company.  Find where your business fits into the existing market and determine your niche.  You’ll be more successful at obtaining VC financing if your business can fill an outstanding need in a market. 

Employ the Best

Part of your business strategy should be hiring a leadership team who are experts in their field.  With an experienced team, your business has solid oars to row through rough times, which is important from the venture capitalists’ perspective. 

Make Achievable Goals

What are your business goals?  Indeed, you want to make a profit, but how will you achieve that goal?  Write down the steps that your business will take to become profitable and sustainable.  Goals should be achievable and believable by the venture capitalists if you want to earn their trust.

Emphasize the Strengths and Work on Weaknesses

Be upfront about your business strengths and weaknesses to VCs.  Be sure to emphasize your expertise, your leadership team’s edge, and how the business will excel.  However, lay out what your business needs to do to improve in areas.  Venture capitalists want to know how your business can handle the weaknesses.  In addition, discussing your weaknesses also shows the venture capitalists that you can accurately and realistically judge the business environment. 

Your business strategy will be one of the biggest selling points to venture capitalists.  Refine your strategy and make it strong, achievable, and believable – and you will find that venture capitalists will be equally excited in your vision.