November 11, 2012
It can be frustrating not having the capital you need to pursue a great idea. One way to raise the money to put your idea into action is through a venture capital firm. However, these firms do not just give out money to any entrepreneur that needs it. Venture capitalists provide start-up capital in exchange for share in profits or ownership in the company. Venture capitalists receive hundreds of requests from entrepreneurs each year. You must approach them properly in order to convince them that your idea or project is viable. Approaching a venture capitalist is something that needs to be well planned. Venture capitalists are busy people and have hundreds of potential clients to deal with. It is important that you contact the venture capital firm in a professional manner. Making contact through a mutual contact will greatly increase your chances of success. If you can, get personally introduced to the venture capitalist by a lawyer or an accountant rather than blindly pitching them with your proposal or offer.
You’ll have a much better chance of getting their attention. Most of these introductions are made by accountants, attorneys and executives of companies already working with the venture capitalist.
Have a thorough knowledge of your business or product. You should be able to explain to the venture capitalists what your business or product is all about and the benefits it offers to customers. Develop an attractive business plan. This is a rigorous document that is created in very very specific format. Having a business plan to present to venture capital firms is not optional; it is a requirement for getting the attention of the venture capitalists. Before you go out to look for funding for your business, you should have a solid business plan, which includes profit and overhead projections.
You need to look for the right kind of venture capitalists. Venture capital firms come in different sizes and industries. Find a firm that’s a match for your project and deals with the industry in which your business belongs.
Once you have made the initial contact with the right venture capital firm, send an executive summary, which is a document specifying the important aspects of the project. This document is usually one or two pages long. You can send this by email, but it’s also appropriate to send a hard copy by courier mail.
Negotiate a good deal. After you have found a venture capitalist who is interested in investing in your business you need to negotiate. Venture capitalists are in business to make money and will want a huge share of your business. That’s why it is important to negotiate an agreeable deal. Don’t give up ownership of your whole business or idea and future to them.
Their aim is to take possession of as much control and ownership of your business as possible. Negotiate a good deal that allows you to retain an ownership stake and full control of the direction of your project.