Most people in America are familiar with reality TV game shows. Survivor is probably the oldest and most common reality game show that still retains popularity today. In Survivor, the contestants are put to the test in a remote part of the world.  To eliminate the competition and get further in the contest, alliances are formed usually between two or more people.

Using this kind of comparison, you can see how an alliance with a key business may be useful to obtaining venture capital funding. While your alliances will probably not be as cut-throat as a contestant game show with $1 million on the line, a key alliance or two may be the element you need to attract venture capital as an investment opportunity.

Advantages of Alliances

What are some of the advantages to alliances? Imagine finding greater success and building more revenue to attract venture capital through:

• Additional sales channels – Utilize your alliances to penetrate additional markets and reach more sales channels you could not do on your own.

• Shared technology – Through strategic alliances, you can get access to technology you wouldn’t otherwise have. Instead of investing heavily in new expensive equipment, an alliance may be the way to utilize that technology without burning through all your seed money.

• Credibility – A strategic alliance with a very prominent or visible partner could mean added credibility to your business idea. Imagine presenting venture capital firms with your idea that includes Disney characters, McDonalds logos, or 3M technology.

Tips on Forming Alliances

You can never dream too big when it comes to finding the right alliances.  As an example, Mello Smello, a small mom and pop sticker company, partnered with 3M and Disney to create scratch-and-sniff stickers that propelled the small company into national status. 

There are different strategies you can take to form alliances, including:

·         Joint Ventures – Talk to the top management in a business with whom you want to align yourself. Sell them on your business idea, and show them the benefits they will receive by joining you in a business venture. If you can get a few good alliances on your side, it may win over venture capital firms. 

·         Go National – Don’t just think locally for your potential alliances. Think national. As mentioned, the more high-profile your alliances are, the more credibility you get with venture capital firms. 

Don’t be shy or reticent about forming an alliance or two before you approach venture capital firms. Get these types of key strategic business relationships on your side and face the unique challenge of impressing venture capital with your partnership abilities.

What is your new business idea?  Every good entrepreneur worth his or her salt is confident in their idea, which is usually accompanied by high hopes and lofty dreams of tremendous success.  

However, what is the reality of the market opportunity for the business idea? If a start up business will take a new idea to a venture capital firm to present it as an investment opportunity, the market opportunity must be significant.

Even if a new business idea is worth its weight in gold, if it doesn’t serve a sizable market, then a venture capital firm will not consider it a qualified investment opportunity. VCs know that in order to get their investment back, a business idea will need to attract a wide market, and that market must be open to the idea.

Is your idea’s market big enough for a venture capital firm?  Here are a few factors to analyze before approaching a VC:

Identifiable Market

Does your market exist, and is it easily identifiable? Don’t ever think that your new product idea will “open a whole new market.” VCs aren’t interested in a possible market opportunity – only existing ones. And remember, a small regional market is not good enough. It must be at least on a multi-regional, national, or international level market.

Commercial Viability

If the market exists and it is sizeable as a VC investment opportunity, the next step is determining whether the product or service idea is commercially viable. Will it service a current need in the market? Will it fill an existing niche?

Other factors to consider about commercial viability are whether the product will be reproduced and manufactured repeatedly, efficiently, and in a cost-effective manner? Will it sell at a price that will generate a profit?  

The same questions hold true with a service idea. Will the service sell at a price that can generate enough revenue to pay back the VC – plus profits?

Competitive Advantage

Finding an existing market and knowing the product can fill a niche is not sufficient. The new business must have an identifiable competitive advantage over existing products or services in the market. VCs will want to know that new business ideas are worth the investment opportunity. Be sure to show them why the customer will buy your product over the competition.

If you are looking to find venture capital, be sure you get your research done. Find the market, and get the proof that people will buy your product. Finally, prove that the competition doesn’t stand a chance. Then you’ll have a much better chance at getting that VC deal!

Many new entrepreneurs have a skewed view about venture capital funding. Some believe that a great idea and lots of passion and enthusiasm are all one needs to convince a VC firm to become partners in a new business venture. However, VCs particularly scrutinize fresh entrepreneurs – especially if you don’t have funding and a track record already.  

To separate fact from fiction, a VC firm will not lend any money to a new company that does not already have some form of small business funding.

If you read that correctly, then yes, you need money before you can get money. VCs want to know that you are taking a financial risk yourself.  Of course, all entrepreneurs start by bootstrapping, but you still need more business capital before you approach a VC to ask for more money. 

Self-Funded Capital

Where can you get it? There are many forms of startup business capital. The top three self-funding capital types are:

• 401(k) – Either through your 401(k) or other types of retirement fund, you can take loans against the funds to invest in your start up.  Though it’s not recommended, you could even withdraw a portion or all of your fund to get startup capital.

• Savings – If you have substantial savings, this is a good way to show investors you believe in your business idea.

• Friendly Loans – Also known as “Friends and Family,” or F&F loans, these are also a common way for start ups to get their seed money.  If you can encourage the people close to you to get onboard, VCs might take a second look at your idea.

Third Party Funding

Other forms of small business funding may come from other outside sources before you approach a VC firm. Here are the top three you might consider:

·      Corporations – Though the last few years have been modest, corporations are known for investing money into startups. They know that VCs can make a substantial return on their projects – and so can corporations if they invest wisely. Approach corporations in the industry of your new startup. For instance, if you have a technology idea, you might talk to Dell, Cisco, or Microsoft for a stake in your new business.

·     Angel Investors  - “Angels” are similar to VC firms, except they are typically wealthy individuals who make it a point at helping startups. Angel funding can certainly be a good step toward obtaining venture capital funding, especially since angel investors are well suited for funding smaller amounts of capital. 

·     Incubators – This type of initial investor is one who may not invest cash, per se.  However, you could get valuable technical or business consulting, bookkeeping or accounting services, donations of office or research space, and even networking help.

To get to the next step of business capitalization, you need to have investors and/or your own money on board. Get to these types of initial business funding and then take your new venture to the VC firm.

How has the economy affected venture capital new business funding? According to a report released in January 2010, the state of venture capital is in a deep freeze. The study and report was issued by Thomson Reuters and the National Venture Capital Association (NVCA), and it noted that the total amount of venture capital funding was at its lowest rate in 5 years.

The Reality of 2009

The report shows that investors are becoming less interested in funding new venture capital deals. VC firms raised a total of only $15.2 billion from 120 funds in 2009, down 47% from $28.5 billion from 223 funds raised in 2008.  This was down 58% from 2007 when a total of $36.1 billion was raised from 250 funds for venture capital.

In terms of actual investments made by private investors such as venture capitalists, in 2009, only 2,795 deals were made, with a total business funding of $17.6 billion. Compared to 2008, that number is down 37% when 3.985 deals were made for a total investment of $27.9 billion.

Why Venture Capital Shriveled in 2009

Why has the number of venture capital deals spiraled downward? The economy is a major concern, and investors have certainly reduced their risk tolerance levels. New businesses, despite whether they have a great idea and top-notch management team, are slated to fail with dwindling markets. While few venture capital firms did invest in new businesses in 2009, many voluntarily stayed out of obtaining new investments completely.

Looking to the Future

However, the outlook is promising. According to Mark Heesen, president of the NVCA, “most of these firms will not be afforded the luxury of continuing to wait for market conditions to improve in 2010.” Heesen goes on to project that 2010 “promises to be a defining period as we will gain a better sense as to what the venture capital industry will resemble in the next decade. All signs point to a leaner, more capital efficient asset class comprised of firms with proven track records of delivering value to limited partners. Not all firms will make that cut, but the ones that do will be very well positioned to invest.”

And according to a poll of venture capitalists about the outlook for 2010, the respondents said they expect to see gradual increases in the total amount of investment levels. Areas of expected increase are in “green” technology companies, as well as more venture capital investment in growth companies and later stage companies.

When an entrepreneur thinks of capital funding, the first thing that comes to mind is venture capital.  However, depending on the stage and growth plans of the new company, an entrepreneur may be better suited to pursue an angel investor. 

Many venture capitalists receive proposals for capital financing from companies that just do not meet their requirements for scaling, industry, or funding amounts.  This happens frequently when entrepreneurs fail to properly research the role or expectation of a VC firm in comparison to an angel investor.

An angel investor is an individual or private company that may wish to invest capital into new businesses that need help getting off the ground.  A previously successful entrepreneur may become an angel investor as a way to help new entrepreneurs get past the self-funded stage.  Typically, angel investors will fund companies that need financing in amounts anywhere between $150,000 and $1.5 million.  Though angel investors are easier to acquire than VC, they still require higher return amounts than traditional bank loans.

Venture Capitalist vs. Angel Investor

How can you, as an entrepreneur and business owner looking for capital growth, know which investor to approach?  Here are some guidelines:

Type of company

Venture capitalists have a preference for certain industries, particularly those with high growth, such as biotechnology or software with large expansion potential.  Though angel investors like high growth industries as well, they are more apt to be a capital source for other smaller growth industries. 

Size of company

The growth potential of the company is a tremendous factor in VC funding decisions.  They expect big returns when a startup company goes national or global, is acquired by a major corporation, or offers an IPO as a larger corporation.  Angel investors, however, will look at smaller companies that do not require as much capital for initial startup or capital growth.

Experience

VC firms are notorious for picking and choosing startup companies that are lead by experienced entrepreneurs.  Experience may be within the industry they are entering or through other successful entrepreneurial ventures.  Angel investors, on the other hand, will more likely help a first-time entrepreneur.

Amount of capital needed

Whether you need only one round of capital financing or a series of rounds, if you need more than $3 million for your capital needs, you should seek VC funding.  VC firms will usually not consider startup or small companies needing less than $1 million, unless the VC firm specializes in seed capital for startups. 

Generally, if the total capital required to create a positive cash flow in just a few years is less than $3 million, an angel investor is the way to go.

If you are an entrepreneur who wants to get an innovative business off the ground with a capital inflow, consider your options carefully.  Think of how big you want to take your business, your experience, and your ultimate capital financial needs.  You may find that a VC firm is not what you’re looking for after all. 

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.

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!

If you’re like many entrepreneurs who have a great business idea, you may have approached a venture capital firm with a proposal for additional capital financing.  And like many entrepreneurs before you, you may have been rejected before you even met face-to-face with the people at the VC firm.  Getting a rejection from a VC firm is not necessarily the end of road, nor should it stop you from continuing to pursue venture capital.

Your rejection can lead to keen insights in what you and your business need to do to improve chances of receiving a “yes” vote from another VC firm.  But in order to get access to those insights, you need to approach the rejecting VC firm and ask for feedback.

Why Ask For Feedback?

A VC firm typically has deep experience in knowing what business models work and what doesn’t.  After all, they are in the business of helping companies succeed.  Their experience can provide valuable information to you in how to present your idea in a better light, or at least on how to improve your business model so that it will look attractive to VC firms in the future.

A venture capital firm’s reason for passing on your proposal may help you discover how your perspective differs from other professionals.  You may find out that your “great” business idea is not so great after all, or it has already be tried, tested and saturated by other entrepreneurs before you.  You may want to re-evaluate your business idea and find other ways to make it innovative and fill a niche.

You also could find out that your business strategy does not align or match up with that particular VC firm’s investment portfolio.  In that case, you may want to review your list of potential venture capital firms and re-evaluate which ones to approach next.

Ultimately, you may learn that your business idea and business growth strategy does not fit with the high expectations of a VC firm.  You may want to re-evaluate other capitalization options other than VC firms in that case.

How to Ask

You need to approach the firm and tell them you are interested in their feedback.  VC firms are not in the habit of providing feedback and constructive criticism to rejected entrepreneurs.  For one thing, they are far too busy.  Another reason is that they know that entrepreneurs may not take rejection and criticism well, and subsequently, they do not make a practice of providing it.

However, it is likely that you can get some positive and constructive information if you only ask.  Be sure to be polite and always remain businesslike.  Your attitude will be a key in whether a VC provides feedback or not.  You can ask by email, a business letter, or a phone call if you feel it is appropriate.

What Not to Do

What you should avoid is being rude to a VC firm that has rejected you.  Remember, it’s nothing personal.  It’s just business.  Leave your pride behind you.  And don’t continually bother or pester a VC firm if they do not respond or have refused to give you feedback.

Your business idea is your brainchild, and you should be ready to nurture it into the business that you dreamed.  Asking for feedback in order to make better decisions and improvements is never a bad business idea.

Congratulations!  You’ve been chosen to meet with a venture capital firm based on your business plan and proposal.  Getting that face-to-face meeting is a critical step in securing venture capital to fund your business.  When you meet with a group of venture capitalists, remember that first impressions are important.  How should you introduce you and your team to a VC firm?

Be Prepared

First, be sure that you and your team are prepped before meeting with a VC firm.  That means practicing your individual pitches with each other, getting the timing down, and answering all anticipated questions.  You don’t want to waste the time of the people at the VC firm.

Keep It Short and Concise

You will probably be asked about your background, as well as the rest of your team’s experience.  Each of you should be ready to give a short but concise summary of your expertise and background.  Tell them your name, your position in the company, and give brief but important one liners from your previous positions. 

For example, you might say, “I’m Steve Jacobson and I’m the founder and CEO of our startup.  Previously I was VP and head of development at TechWare Software, where I spearheaded the development of a database program that led to more than $500 million in sales.” 

Though you want to keep your background short and concise, you still want to highlight the major achievements you’ve made.  Feel free to take more than 30 seconds, but no more than a few minutes, to point out why you’re the best person for the job.  Your quick, high-level background will give the venture capitalists a bearing on your qualifications.  They will also be judging you based upon how you interact with them and your team throughout the presentation. 

And remember, though you are there to convince a VC group that you are qualified to lead your business idea to great success, your main objective is pointing out the business itself.  Be accurate and highlight your accomplishments in your introductions, but move on ahead with the business.

Be Yourself

Although it may make some people uncomfortable standing before a group who will ultimately judge whether you make the grade or not, you and your team all still need to be yourself.  It’s tough to be scrutinized and judged by others, especially in a situation where a lot is at stake, such as the future of your business.  But learn techniques to control your anxiety so that your natural personality comes through.

Also, don’t try to pull off becoming a “game show host,” giving cheesy smiles and making “come on down” type comments.  Taking on another personality to hide your own anxiety leads to false impressions and insincerity.  Simply talk calmly and normally in your own voice and pace.

Meeting with a VC group can cause anxiety.  However, with practice and preparation, you can tackle the challenge and come out a winner with your VC proposal.