November 30, 2012
Most start-up companies have the need to raise cash flow through some type of financial backing at some point in their early workings. One channel that helps new businesses get the funding they need is Venture capital financing. Financing might be made available to the new business in exchange for profits in the business or ownership of the business.
Before you go out to seek funding from venture capitalists, make sure you know your business and project inside out. Having thorough knowledge of your business and how it is better than the competition will help you greatly in convincing the venture capitalists that you have a viable opportunity. The investors want to make sure that their investment will yield huge rewards and profits. So you must be ready to explain why to a potential investor why you think the customer will be compelled to buy your product or service, how your product or service will benefit them and whether it is a good value for money.
As an entrepreneur, venture capitalists will even assess if you have the passion and dedication that will make your business successful. They will determine if you have the perseverance and courage to make it work no matter how tough the situation gets.
Finally, the strength of your project is a crucial deciding factor. Venture capitalists would be willing to invest in your idea only if they feel your idea is solid enough to generate significant returns. You should create an impressive business plan in order to convince them that your idea or business is worth investing in. Make sure the business plan outlines the steps you plan to take to make the business profitable. If you put in the time and effort to create a solid business plan, you will tremendously boost your chances of getting the funding you need.
Create a perfect sales pitch before you set up any appointments with venture capitalists. Your aim is to convince the venture capitalists that their investments will pay off very well. These investors will only risk their money if they think that there is the potential for their investment to bring back returns. They want to know how you will achieve these returns. Deliver your pitch persuasively and instill in their mind that that your business provides great value both for customers and investors and that they can’t afford not to invest in your business.
It is always better to be personally introduced to the venture capitalist by other professionals who have already had a business dealing with them. This will boost your chances of getting a favorable response from them. Contacts can be made through lawyers, accountants, and executives of companies already dealing with the venture capitalist. Once you’ve made an initial contact with a venture capitalist, send them an executive summary, which is a one- or two-page document specifying the important aspects of the project.
It is advisable to consult your lawyer before you get into a negotiation with venture capitalists. A good lawyer will guide you in the proper way to negotiate a good deal that allows you to be in full control of your business.