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.

Venture capital is one of the few financial resources a startup or small company can access to obtain large scale funding for growth and expansion.  However, attracting a VC firm and convincing them to invest in your business venture is not easy.  In fact, only the best business ideas with the best people will be lucky enough to receive a nod from a venture capital firm.

Having a great business idea and plan is not always enough.  Entrepreneurs may have a knack for creativity and developing business ideas, but communication and sales may not be their strong point.  An entrepreneur who recognizes this fact will be wise to hire a public relations and communications expert to be the front person for the company.

Benefits of a Public Relations Expert

• Contacts - Experienced PR people have a long list of contacts and networking resources.  They know what media sources to contact when attempting to make a promotional announcement, and may also know the right contacts who may know somebody who knows somebody in a venture capital firm.  Having a wide stretch of network contacts can be a great benefit for a new business.

• Media Coverage – Your PR person can secure beneficial media attention before your business makes a presentation to a venture capital firm.  A PR specialist will have the ability to write attention grabbing press releases that could result in free publicity from news sources.  Positive clips from newspaper interviews or feature stories, or even videos from broadcasted news, can grab the attention of VCs.  

• Great Presentation Skills – The right PR person will make the perfect spokesperson for your group.  Their smile, cheerful attitude, and ability to communicate clearly and answer questions can thrust your business brand and reputation into the right VC hands.  In many new business cases, the entrepreneur is a great central figure for the business model and development, but not always the best choice to make a presentation to potential investors.  Make sure that when you get the chance to present to a VC firm that you choose the right person to perform the main speaking role.

Choosing a PR consultant or hiring a full-time PR spokesperson should be done carefully.  Your PR choice could result in big savings in advertising costs with the right free publicity received from news outlets.  Take a look at PR consulting firms and see if that is the right option.  Sometimes the right choice is to hire a freelance PR specialist who can devote more time to learning your business and have a better understanding when making presentations. 

Insist that you review a potential PR person’s experience and success.  Your PR person should have experience and verifiable results in the areas you need, whether it is in presentations or media publicity. 

Taking your business to the next level may require large funding from venture capitalists.  Consider the possibility of hiring an experienced PR consultant to be your front person and helping make your company look its best.

Part of a good business plan is a plan for exiting the business.  Indeed, even you, the entrepreneur, should have a plan for your business where you will no longer be running it.  If you are looking for venture capital funding, having an exit strategy is even more critical.  Remember, venture capitalists receive the most profits when an exit strategy is realized, such as an IPO or acquisition. 

But what is an exit strategy, and how does one conceive of a sound and strategic exit strategy?

An exit strategy is the plan for an entrepreneur or business owner to exit the business.  An exit could take one of many forms.  The business could be sold, all assets could be liquidated, or the business could go the public investor route with a public stock offering.

Liquidate the Business

Some entrepreneurs form a business with the intention of short term gain rather than a lifetime job and income.  Growing a business to end up with a large equity balance on the balance sheet may be the right strategy for a young entrepreneur who has bigger dreams and ideas.  Once the business hits the equity goal, all assets could be sold and debts paid, leaving a nice profit for the entrepreneur.

Likewise, a business that fails is likely to go this route as well.  If an entrepreneur exhausts all means of trying to keep the business breathing to no avail, the liquidation option may be the best exit strategy to get out without further losses.

Sell the Business

Rather than calling it quits and selling the business assets, an entrepreneur could make an exit strategy to sell the business to an interested party.  This strategy may be good for an entrepreneur who also does not want a long-term commitment to the business, but desires to make a profit from his or her efforts.

Selling a business could either be to another entrepreneur who wants to run a business for himself.  Or it could be a strategy to become acquired by a larger business.  Many small business entrepreneurs have gone this route.  YouTube, for example, was formed by former PayPal employees and was subsequently acquired by Google for $1.6 billion – which is not a bad exit strategy.

Opt for an IPO

The initial public offering (IPO) of a company is what many entrepreneurs aspire to accomplish.  A successful private business that has shown growth and revenue expansion can be highly desired by investors.  By offering the business as a public stock company, the entrepreneur releases his or her ultimate hold on the company and puts it in the hands of a board of directors.  The entrepreneur could stay on as CEO or simply cash out his share of stock options.

Whatever the exit option, a successful entrepreneur will have a plan.  The exit strategy is particularly important if an entrepreneur wishes to obtain seed money from a venture capital firm.  The VC wants to know the ultimate plan for the entrepreneur before investing large sums of money.  Thus, it is important that you develop a sound exit strategy plan for your business.  Though it may not be the ultimate result, it still gives an entrepreneur an alternate goal with the business.

Entrepreneurs who are starting a new business have a big challenge ahead.  It’s not enough to have a great business idea and a perceived market, but a keen entrepreneur will spend a great deal of time evaluating and sizing up the competition.  Having a clear picture of your competition’s business process and product marketing not only will help you develop your own, but also will help in setting your business apart if you are looking for venture capital financing.

Knowing your competition isn’t about squashing them.  The days of industrial revolution monopolies, where killing or buying out the competition in order to be the last business standing, are a thing of the past.  Today, knowing your competition is learning about their message, their product, and their business process so that you can develop a product that sets you apart.  Your business should be able to penetrate the market and work harmoniously along with the competition. 

Becoming familiar with competition not only helps you design your business process, but it also allows you to find ways to form potential partnerships with your competition.  Collaborating on joint ventures is a great way to expand customer base and revenues for both businesses.

Starting with Your Research

Your competition research should begin with the prominent business in your region or even on a national level that sells a product or service almost identical to yours.  Acquire their marketing materials like brochures, catalogs, and website content.  You could even make a purchase from the competition as a “mystery shopper” to gain intelligence on how their customer service functions and the quality of sales service. 

Find the Message

Once you’ve gathered as much data possible, take a look at how your competition delivers their message.  Do they use fancy graphics?  Flowery words?  What is it about the marketing material that attracts a customer to make a call or visit their store? 

If you have data from a number of different businesses, look at how many may have similar messages.  Some businesses try to compete simply by imitating their competition rather than trying to stand out.  Look at the messages from each and determine what works best and what is ineffective. 

Spin Your Own Message

Evaluate how your message can be delivered more efficiently and effectively.  Can you provide better customer service?  Does your product or service have features above and beyond what the competition sells?  Find ways to set yourself apart.  You don’t have to create material that is identical.  Rather, find ways to incorporate what works into your own message that will attract the same type of customer.

Chances are that your business idea is not completely unique.  You will have competition in some form.  If you are an entrepreneur who is looking to expand business with venture capital, you should perform a complete evaluation of your competition so that you know where you stand within your niche – which will allow you to demonstrate to venture capitalists how you will stand apart.

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 enter a boardroom full of venture capitalists bent on drilling whether your business idea is a good prospect, be prepared to become the business.  You cannot rely on your business plan alone when venture capitalists are considering whether they should invest money in YOU.  Remember, your business plan is just that: a small black and white booklet that gives readers some idea of what your business is and how your business is going to make money. 

Don’t Make the Cardinal Mistake

One of the worst mistakes an entrepreneur can do is sit back and depend on the business plan to win the hearts of venture capitalists.  If they ask a question, the last thing they want to hear is, “oh, it’s there in the plan on page 5.”  What a VC firm really wants to know about is you and your management team.  How did you come up with the business idea?  How much experience does your chosen leadership have to forge a successful business?  How do you back up the numbers on your financial data?  Why should they give money to you and not Entrepreneur Joe waiting in the lobby? 

Use your business plan only for reference.  You must become the face of the business – a face in which venture capitalists want to invest.   

With that said, what do VCs want to know about before writing big checks in your company name?

Venture Capitalists Are Investing in You

Of course, venture capitalists want to know about you and where you come from.  What is your expertise and experience?  Do you have a background of leadership?  How about previous innovation and entrepreneurship?  VCs will need to trust that you and your co-entrepreneurs are fully qualified before they back your business.

You don’t need to lie or exaggerate about your background.  But paint your expertise, desire, and enthusiasm in the best possible light.  When you are excited about your business, others will be too.

What About Your Management Team?

Venture capitalists know that you can’t run a business alone.  They want to know that you have put together a great management team and that you have the highest confidence in them.  Therefore, choose your partners and leadership team carefully.

Your Employees

Your employees will likely be what your customers see as your company.  How will you hire them?  Train them?  Will your company invest and support the career growth of its employees to help retain the best?  Be sure you highlight the roles your employees will play to VCs.

Your Product or Service

What does your enterprise sell?  Expertise in a consulting role?  Manufacturing a new widget?  Show VCs how your product or service fills a niche and why it will be in demand for your customers.

Your Strategy for Success

Finally, venture capitalists want to know how your business strategy will be put into action.  If your business plan has a sound strategy with attainable goals, as well as viable steps you and your team will take to achieve those goals, you will have a step up with potential VC funding. 

Make your business stand out to venture capitalists with the Who, What, and How.  Remember, venture capitalists are not investing in your business plan.  They are investing in you.  Bring life to your plan, and you will have better success with obtaining VC funding.

How can you succeed in creating a new business idea?  You don’t need to be like Thomas Edison and invent a revolutionary product like the light bulb.  In fact, you can simply invent how to illuminate the light bulb without using electricity.  Indeed, your new business idea can be an innovative re-working of an old idea that venture capitalists appreciate.   

“Recycling” Ideas for Venture Capital

If your new business is seeking venture capitalist (VC) funding, you want to demonstrate your innovation and why your product will succeed in the marketplace.  The beauty of “recycling” and improving an existing product is that it already has a proven track record.  Inventing a widget that consumers have never used is risky, but making a popular gadget even more effective has a greater chance of success. 

What makes an old idea better?  Remember when photographic cameras used film and processing to record images and produce an image?  At some point, someone determined that images can be captured electronically in digital format, eliminating the need for post-processing of film.  Since then, digital photography has seen continued improvement in quality and detail.  Film cameras will soon be antiques, as all images, including video, will be recorded digitally because of this new and innovative process on an old idea.

The camera is not a new invention.  It’s been around for about 150 years.  But with the digitization of light capture, photography has been opened up to a much wider customer base.  Think of this as an inspiration point for how you can take your skills to make a proven technology even better – and ideally, how your idea will make an existing product even more popular among the masses.    

Using Old Ideas as an Inspiration Point

Think about your business idea.  Let us say that you are great at computer programming and can create a solid and applicable database design.  How does your idea improve upon the old one?  Databases are used everywhere.  Can you offer a revolutionary or innovative user interface?  Can you improve upon the speed at which your database functions? 

It’s perfectly acceptable to bring an old idea to a venture capitalist and ask for funding.  Old ideas have been serving this world quite suitably.   However, when you create your business idea and business plan, it needs to have sparkle and a creative twist that fills a niche in society and serves a large consumer base.  And yes, even you can succeed as an entrepreneur by making a better mousetrap!

No one makes a hole-in-one on their first try.  If you are an entrepreneur with a great business idea seeking venture capital (VC) financing, don’t be discouraged if the first VC firm you pitch turns you down. 

Rejection is one of those facts of life that everyone must face.  And most any entrepreneur will know first-hand about rejection and failure.  However, the best entrepreneurs will pick themselves off the ground, brush off the dirt, and continue the journey.  That’s resilience.

One of the most famous stories of resilience is Donald Trump.  After becoming the biggest real estate mogul in the 1980s, he swiftly fell back to Earth when he and his holdings went bankrupt.  But through determined resiliency, an optimistic outlook, and a well-planned strategy, he re-emerged again as the top real estate developer in the world.

When it comes to securing capital from venture capitalists, what is the best way to handle rejection and move on to the next opportunity?

Ask for Helpful Criticism

If you are turned down by a VC firm, don’t be afraid to ask the reason.  It could be just that they are looking for a different type of industry to invest in, but they may offer constructive help about your business plan, your pitch, your strategy, etc.  Accept any criticism not as a put-down, but as an opportunity to improve your pitch for the next venture capital firm.

Be Flexible and Adaptable

If you, as an entrepreneur, will succeed, you must accept that your way may not be the only way.  This is true for any industry.  For example, when making a feature film, actors must be flexible with direction.  Directors are flexible with producers.  And producers need to be flexible with financiers.  A feature film is a collaborative effort, just like any other business endeavor with third-party financing. 

Remember that if you are asking for a large investment from a VC firm, they will want to have a say in making sure both you and they profit from the venture.

Galvanize Your Determination

If you have experienced setbacks with obtaining VC funding, you must be more determined than ever if you want to succeed.  The famous novelist John Grisham tried to sell his first novel through 15 publishers and 30 agents.  All rejected his fictional crime story.  He was determined, however, and went on to self-publish his first novel, A Time To Kill, and he has since become one of the leading best selling thriller authors in America.  If he had become dejected after his rejections, we would not have the joy of reading his page-turning legal thrillers.

Never accept rejection.  Rejection is simply one person’s or one VC firm’s opinion.  If you believe in your business idea, then you will find the right VC to help finance your successful venture. 

Would you walk into a venture capital (VC) meeting wearing jeans and a tatty t-shirt?  Hopefully, your answer is a resounding NO!  Keeping this in mind, your entire business concept should not be presented to venture capitalists in ill-conceived metaphorical jeans.  You want to ensure that your business “look” is far from sloppy.

Your business look consists of everything that a potential customer sees when interacting with you.  That means your name, logo, paper and other printing materials, and website all must display a look that is attractive and welcoming to your customers.  A well designed business look will show venture capitalists that you have taken considerable time and effort to present your business in the best possible light.

What elements should you consider for your business look?  It’s all in the details.  Evaluate your business look to make sure it incorporates the following:

Name and Logo – Your business name and logo are one of the single most important marketing elements.  Your name may be incorporated into the logo.  Choose typeface and fonts carefully based upon the branding and image you want to project.  For example, a creative or designing firm should use an edgy style that reflects the firm’s innovative ideas.  On the other hand, a financial consulting business should design a logo using a more traditional serif font that reflects sound financial strength.

A logo should always be professionally designed by a graphic designer.  The money spent on a well-designed logo is money well spent.

Color Psychology – The colors you choose for your business look are important as well.  Avoid using too many colors that end up difficult and expensive for professional printing.  One or two colors are best for a logo, and no more than four.  Consider backgrounds as well.  A safe background for printing and website is white.  Gray letters or logo against white is low contrast and difficult to see, and the same holds true for your website.  Use contrasting colors that make your logo and name pop out. 

Also keep in mind the different moods that colors invoke.  Red is the color of fire, strength, and power.  Blue is more subdued and relaxed.  Purple represents a royal or regal aura.  Your color choice for your business logo and name has a lasting effect how customers and venture capitalists view your business.

Clean Layout – Logos and names should not be overpowering or too distracting.  The use of white space and balance in a logo is important.  On your printing materials, your logo should appear on the top of your letterhead aligned right, left, or centered.  A slogan is also sometimes included.  Your business contact information should incorporate similar fonts as your name or logo. 

A business name and logo with the right design elements and layout will help a business attract customers, as well as help VC’s view your business as professional and ready to take on the market.  Remember, venture capitalists are not only analyzing your innovative idea, but your entire business savvy as well.   Show them that you understand how to reach your customers by putting your best logo forward.