November 5, 2012
When the time comes where a minimum of $500,000 is required to take you new business venture to the next level, you will be in the market for either a bank loan or venture capitalist investors. In all likelihood, a VC investor will be your best bet on a new enterprise. Unlike a bank though, venture capitalists expect a piece of a company in return for their investment, as well as some other perks.
The first step in finding an investor is to launch an investigation to find investors who have a track record of investing in companies similar to yours. Some investors lean toward new products while others prefer to back new services; the stage of growth your company is at will make a difference as well. If possible, talk to companies that have been backed by the investors you have targeted. Use your contacts to gain an introduction. If an introduction cannot be arranged, then send a short proposal by email through the VC’s website.
Once contacted, be certain you have an excellent sales pitch ready. Although some initial meets may last only 5 minutes, be prepared with material to last an hour. This is where they size you up. You have to sell yourself while selling your idea or product. A short slide show would be appropriate although you may not get a chance to show it. This first meeting is much like a first job interview, a weeding-out process. It is important not to look desperate. People who are a good risk are not supposed to look desperate. In order to make the cut you will have to show enthusiasm coupled with knowledge of your competition, market and client base.
If they are interested, the VC will want a full presentation where you will give them exact numbers and how you arrived at those numbers. This is when a full PowerPoint presentation will be needed. The presentation should last 60 to 90 minutes and detail your business plan, how much money you need, what the money will be used for and why your product or service will be in demand. If your product or service has competition, you will need to explain why yours is better or less expensive to produce.
It is important to show that your company can produce high yields for the investors. No matter how much they like you or how good your business plan, if you cannot show exponential growth you will be turned down. You need to show that investing with you will provide a return better than they can get elsewhere in the next 5 to 10 years.
After what may be months of interviews and negotiations, the VC firm will present you with a term sheet. Regardless of how much you want or even need the money, you must be certain the terms are ones you can live with. You are entering into a long-term contract, and before signing is the time to voice concerns. It is best to have not put all of your financing eggs in one basket and should have a second or third VC firm in the wings just in case.