May 17, 2013
There are many sources of financing available to entrepreneurs, but obtaining the capital necessary to start a business venture or expand an existing business takes time and a great amount of work. If you have a great business idea but don’t have the cash to put your plan into action, you may consider venture capital financing. This type of financing is made available to entrepreneurs for new business startup and expanding existing businesses. Creating a business plan, looking for potential venture capitalists through networking services, and knowing how to present your ideas properly can get you the capital you need to operate your business.
Finding and working with venture capitalists can be challenging but has advantages over trying to obtain bank loans to finance your project. Banks often impose strict and inflexible criteria for granting loan requests. If your project is considered risky or your credit rating is compromised, obtaining a loan at a good rate may be difficult. Venture capitalists, on the other hand, often use different criteria and are likely to invest in projects that a bank doesn’t want to deal with in hopes of getting a better return on their investment over time.
Before beginning your venture capitalists search, prepare a solid business plan. Venture capitalists always want to know about how you plan to operate the business to make it profitable and the potential of the business to generate significant profits in the future. To get investors interested in your project, you need a well-developed business plan that shows a clear strategy for success. An accountant or business coach may be able to help you put a business plan together.
Lawyers and accountants can be an excellent source of contacts for potential venture capitalists. While some venture capitalists do read proposals that come unsolicited, proposals referred to them by a business associate, accountant or lawyer or other trusted source get far more attention. Another option to meet venture capitalists is to attend a venture capital conference. You can find out about these opportunities by networking.
Before negotiation, make sure you prepare yourself. You should make a list of the things you want to discuss and your expectations. You should also be receptive to the venture capitalist’s expectations. Accepting venture capital deal could mean losing some control of your company. Many venture capitalists want to have a representative from their firms on your executive team. It is important that you have a good attorney who can advise you on matters regarding business deals and negotiations. Documents provided by a potential venture capitalist are most likely to be written in their favor, not yours.
You need your attorney to advise you on any contracts that you sign. You don’t want to put in a lot of time and effort to build a business only to lose your company to an investor because you didn’t understand the terms outlined on the contract. So be absolutely sure you understand them before you accept the deal.