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May 29, 2011

Five Ways to Attract a Venture Capitalist

About 600,000 new businesses start up every year in the US alone; however, there are only about 750 venture capital firms in the country – so as you can imagine, there is a lot of competition for a limited pool of resources. If you want your company to be able to catch the interest of a venture capital firm, your business needs to be the kind of business that attracts them – and the following methods can help you make it happen:

1. Find a unmet consumer need and meet it.

You need to ask yourself which consumers are not getting a product or service they need or aren’t receiving in a way which they’re satisfied with. You’ll have to do some market research to determine what kind of product or service is in demand and how to deliver it in a way that will help you to build a loyal customer base. If you can do this, your company will automatically be appealing to venture capitalists.

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2. Start a business in one of the following growth sectors:

  • Biotechnology
  • Software
  • Energy
  • Medical Devices and Clinical Laboratory Equipment
  • Semiconductors
  • Media
  • Entertainment
  • IT Services/Consulting
  • Telecommunications
  • Financial Services
  • Electronics (including computer equipment and peripherals)
  • Consumer Products and Services
  • Retailing/Distribution

These are some pretty broad categories and there is a lot of room to find an unserved or underserved market. Keep in mind that this list is in order of attractiveness to venture capitalists (according to a survey from PriceWaterhouseCoopers), so the higher you are on the list, the better off you’ll be in terms of getting the attention of a venture capital firm.

3. Position your company in a large and fast growing market.

Venture capital firms like to invest in businesses which are in large, growing market sectors, particularly if your company has a strategy in place to pursue new segments and a larger overall share of the market. Fast growth is the name of the game here, so before you get in too deep, get some detailed reports and analysis from one or more independent market research companies to ensure that your business has customers waiting for your products and services; and make sure that everyone knows it.

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4. Team up with an experienced management team with a successful track record.

You’ll be well positioned to get venture capitalists interested in your business if your senior management (especially C-level personnel) is known for their expertise in growing businesses in your market sector. This is an especially good way to attract investors.

5. Write great pitches and use them any opportunity you get.

You’re going to need a short and to the point elevator pitch, solid business and operations plans, presentations, email content, a compelling executive summary and a high concept longer form pitch if you want to win over a venture capital firm. Make sure that you have all of these ready and refine them as you go if necessary – after all, you want to be sure you’re well prepared when you find a venture capitalist that seems interested in your company.

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