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. 

So much is written about how to secure the attention of a venture capital firm: how to write the perfect business plan, how to narrow a VC search, and how to assemble a winning team. However, not enough information exists on how an entrepreneur can dissuade a potential venture capital firm’s backing.  To successfully secure venture capital, make sure you do not commit any of the five surefire ways to lose a VC firm’s attention.

1.  Big Ego

Let’s face it: entrepreneurs have to be self confident to bring their dreams to fruition.  However, having plenty of confidence does not mean growing an ego the size of Texas.  Some entrepreneurs actually try to bully VC firms with their presentations, attempting to make the investors feel incompetent if they do not dole out the funds. 

It is important to dance the fine line between being confident and egotistical.  Letting a big ego rear its ugly head will surely signal to the venture capitalists that conflict could be in the future. 

2. Inflexibility

Along with an oversized ego is a trait of inflexibility.  VC firms are in the business of lending money and helping new and ongoing businesses succeed.  They have the experience to know what business processes may or may not work, and venture capitalists certainly have the right to recommend changes to companies to whom they lend money.  An entrepreneur who is unwilling to take direction or suggestion will likely not be on a VC roster.

3. Too Cerebral

It pays to be smart.  However, some entrepreneurs focus too much on the intelligence of their business plan theory and not enough on the practical side of business.  This sometimes happens to fresh MBA grads that hit the world with degree in hand, but lack the real-life experience to understand the practicality of market theories.   Your credentials may all look good on paper, but venture capitalists want to know that an entrepreneur has practical experience and a realistic and flexible outlook.

4. Bad Lineup

Your management team is the group of people who will lead the business to success.  They must each have the resume to instill confidence with a venture capital firm who may want to fund your business. 

VC firms have revealed that one major faux pas entrepreneurs commit is creating a HR roster filled with family and friends who lack the experience necessary to build a company from the ground up.  Be sure that your management team lineup consists of experts in their field, and keep in mind that experience with start-up companies is a great bonus.

5. Too Shy

An entrepreneur with a great business idea will most likely not succeed if he or she cannot effectively promote the idea.  Great entrepreneurs have stellar communication skills and can speak directly to a venture capital group about how their business idea will succeed.  If you’re the shy type who crumbles under pressure, you might want to hire a PR spokesperson as part of your management team.

Successful entrepreneurs must have a shopping cart full of qualities needed to convince a venture capital firm of their potential success.  It’s wise to know your strengths and weaknesses – and a wise entrepreneur will know when and how to make up for weaknesses in front of a VC meeting. 

How much venture capital funding does your business idea need?  If you need between $500,000 and $5,000,000 in funding, then venture capital may not be an option.  According to the Dow Jones, there are very few venture capital firms that are interested in investing in companies that need less than $5,000,000 in funding because they feel the returns will not be sufficient. 

Subsequently, what should an entrepreneur with a good idea and solid business plan do?  If you find that your idea needs less than $5 million in venture capital, then you may be looking in the wrong place.  The best funding source for you may exist in angel investors. 

Why Angel Investors May be Better Suited

Filling the gap between entrepreneurs and venture capital are angel groups.  Angel investment groups work differently than venture funds, and they may be the ideal source for your business idea.  They are typically backed by dozens to hundreds of wealthy individuals who want to pool their funds together to support the next “big” idea.  With nearly 170 angel investor groups in America, you can find one whose industry specialization suits your endeavors. 

In addition, angel investors tend to want to be more “hands on” with the companies in whom they invest – meaning you benefit from their industry or entrepreneurial expertise. 

Angel Investors in the Recession

Considering that angel groups are made up of individual investors – many whose Wall Street portfolio has been impacted by the 2008 market – how does this translate into funding during a recession? 

While there have been changes in angel investing, there are some trends that make it better for the determined entrepreneur.  With the recession, there are fewer companies entering into the marketplace – which results in less competition both for funding and industry penetration.  In addition, considering the high unemployment rate, start-ups can now find and retain better personnel and teams. 

Angel investors understand these dynamics and advantages.   In a time where interest rates have hit bottom, they are looking for investments that can make their money work for them – and your business idea may just be the investment vehicle they are seeking.     

Accessing Angel Investors

Generally speaking, angel investors are easier to access and contact than the guarded venture capital firms.  These angel investment groups are typically bombarded with much fewer business plans and proposals than the capital funds – meaning that they have more time to review your idea.  An angel investment firm may receive 500 business plans annually, which is a stark contrast to the 5,000 proposals VC funds review. 

Start your research by reviewing angel investment groups and understanding their focus, whether it is industry-based or geographical.  Review their websites for submission information, or consider finding their accounts via LinkedIn.  Sometimes, it’s as easy as two clicks and a phone call before you find yourself sitting in front of angel investors. 

The recent downturn of the American economy and credit crunch has affected much of the finance and investment industry – and venture capitalists have also been caught in the low tide.  Even though money is still being invested by venture capitalists, you should take note of potential policy changes that may influence your funding. 

Halted IPO Strategies

Initial public offerings on the stock markets came to a virtual standstill by the second quarter of 2008, and the fourth quarter did not witness a single venture-backed IPO.   In fact, according to the Dow Jones VentureSource and National Venture Capital Association polls, the number of IPOs decreased more than 90% between 2007 and 2008. 

With this in mind, many venture capital firms are looking more at startup businesses that do not have an IPO exit strategy, or those who will delay plans for an IPO.  Instead, they are investing more in firms that plan to remain a private business or corporation, or one with high acquisition and takeover potential.  

An IPO does not need to be discounted altogether.  Many startup companies have fared very well with a delayed IPO after a recession.  Google went public in 2004 after the economic recession that began in 2001.  The delay resulted in a big success for the search engine giant.

Lower Amounts Invested

VC firms are also tightening their individual lending budgets.  Rather than lending large amounts of dollars to fewer companies, many venture capital firms are reducing their maximum lending amounts and investing in a more diverse base of startups.  However, this trend means a potential VC fund recipient may expect to receive considerably less than they need or expected from a venture capital firm.  Entrepreneurs who wish to receive VC funding will have to either tighten their belts or search for additional funding elsewhere.

Higher Interest Rates

Be prepared to pay higher interest rates to venture capitalists due to the credit crunch.  The reduction of cash that banks can lend between themselves results in higher interest rates all around.  Investors who are part of venture capital firms will want a higher rate of return since the security of banks lending is reduced.  That translates into a higher payback to venture capitalists for funds invested in your business.

More Competition

Along with the credit crunch and the lesser amounts of bank loans, there will likely be a greater amount of competition for VC funding.  Bank loans are a staple of business financing.  Without this source of financing, many entrepreneurs will be vying for the attention of venture capitalists.  Be prepared to have a solid business plan and projected financials if you are looking for VC funding.

Entrepreneurs with great business ideas need not fret excessively about how they will obtain financing for their new business.  There still is venture capital money for quality ideas.  However, entrepreneurs will need to take additional care to prepare tighter budgets and start with potentially less capital than anticipated.   In order to reach the attention of venture capitalists through greater competition, entrepreneurs will need to prepare solid business plans that show growth and sustainability.

Countless entrepreneurs have said, “I have an idea that will change the world!”  If we all had a dime for every time we’ve heard that phrase, we would all be the next entrepreneur millionaire.  For every 100 entrepreneurs who believe they have thought of a revolutionary business idea, one has already put it into practice and is enjoying a corner on the market or a growing stream of income. 

If you plan to open an entrepreneurial business and obtain venture capitalist (VC) funding, you need a business idea that is fresh.  However, remember that your idea doesn’t necessarily need to be new; it could be a fresh look on an old idea or a fresh perspective on a current business process.

Before you start shopping for VC funding, take a close look at your business idea.  Make sure it has at least one of the qualities below.  If it doesn’t, rethink your entrepreneurial idea so that you can show venture capitalists that your business is ready to fill a needed niche.

See an Opportunity

Many entrepreneurial ideas come from witnessing an opportunity that no one has yet met.  Over ten years ago, Julie Clark could not find materials that she could use to teach her young child about music, art, and humanities.  Subsequently, she created her own video and materials using her basement and a home computer.  Today Baby Einstein is owned by the Walt Disney Company and includes Little Einstein and a host of educational videos and resources for children to learn about the arts.

Sometimes we look for opportunity and sometimes it strikes you instantly.  When you come across a new opportunity for an entrepreneurial enterprise, you already have a great start for success.

Replace or Improve an Existing Idea

Sometimes entrepreneurial success comes from improving upon a current product.  Most everyone is familiar with Soichiro Honda from Japan who came up with an innovative new piston design.  Though his designs were scoffed at first, he soon became a world leader in motorcycle engine manufacturing.  His company continued developing innovative technology with gas-saving automobiles.

Innovative improvements that can replace or improve upon a current product are another road to becoming an entrepreneurial success.  Successful business ideas need to be unique and find a way to make wide-spread changes for the better.

Raise the Stakes

Dominos Pizza once had an ingenious idea to obtain more business by promising to deliver a pizza, fresh and hot, to your door.  This was at a time when people still went to pizza restaurants.  Can you name a pizza place in your town that does not deliver today?  Clearly, Dominos revolutionized the industry. 

By raising the stakes, you can offer better, faster, or more desirable service or products.  All it takes is an innovative idea that takes the best and makes it better, and thus, in more demand from customers.

If you think you have a great business idea, think again.  Your business idea may have the nugget for a great and innovative product or service, but you need to research and refine your idea so that it is unique and fills a niche.  The most successful entrepreneurs will have that shiny, innovative idea that makes life better or easier for a lot of people.

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.