Finding Venture Capital

To an entrepreneur seeking venture capital financing for the first time, an understanding of the venture capital process is essential. The venture capital industry includes many firms with substantial funds to invest, however, it is often a challenge for an entrepreneur to tap into this vital source of financing. The venture capital process begins with an introduction to a venture capitalist. Cold calling on venture capitalists is a long shot. Venture capitalists see many (over the transom deals), very few of which become investments. Introductions to venture capitalists through a referral sources they respect, would improve the odds of securing financing.

1. Target a Venture Capital Partner
2. Write the Business Plan
3. Prepare the Financials

Target a Venture Capital Partner

Choosing the right venture capital firms is an important part of the fund-raising process. An entrepreneur that has not researched and targeted venture firms runs the risk of lengthening the search and over shopping the plan. Venture capitalists readily exchange information, so rejection from one firm may influence others. The criteria for selecting the right venture capitalists to approach include their geographic area, industry specialization, stage of development, and size of investment preferences. Also important are whether the fund will act as a lead investor and whether there are complementary or competing invested ventures within the fund’s portfolio. The research of a fund’s preferences can be done by obtaining literature from the funds directly, talking to venture-backed entrepreneurs.

Write the Business Plan

Often the first step in dealing with venture capitalists is to forward them a copy of the business plan. And, because venture capitalists have to deal with so many business plans, the plan must immediately grab the reader’s attention. The executive summary will either entice venture capitalists to read the entire proposal or convince them not to invest further time. A good plan is crucial for two reasons

First, as a management tool, and second, as a means to obtain financing.

While the plan is an essential element in securing financing, it should also be an operating guide to the business, with the goals, objectives, milestones and strategies clearly defined and well written. This is the best way to demonstrate the viability and growth potential of the business and to showcase the entrepreneur’s knowledge and understanding of what is needed to meet the company’s objectives. The first reading of a plan is the venture capitalist’s initial opportunity to evaluate the individuals who will manage the business and to measure the potential for return on this investment. If the plan is of interest, the entrepreneur will be contacted for the first of what will generally be several meetings, and the venture capitalist may begin due diligence. Since venture firms are in the business of making risk investments, one can be certain a thorough analysis of the company’s business prospects, management team, industry, and financial forecasts will precede any investment.

Prepare for the Negotiation Process.

Following due diligence, the successful venture will then enter into the negotiation process, where the structure and terms of financing will be determined. The entrepreneur must carefully prepare for this next step by becoming familiar with the various structures of venture capital financing and preparing a bargaining position after consulting with an attorney who has extensive venture capital experience. Attorneys will give guidance on the issues worth fighting for. Issues to consider are, vesting, salary, stock restrictions, commitment to the venture, debt conversion, dilution protection, downstream liquidity and directors. The negotiation will involve most or all of these issues in addition to price per share. However, price per-share concerns should not be the overriding interest, the end result of this process must be a win/win situation in order for the relationship to progress successfully. The last step is to document and close the transaction, resulting in a term sheet, investment agreement(s) and, finally, the closing.

Prepare the Financials

Realistic financial forecasts within the business plan are important to attract investors and retain their interest to participate in future rounds of financing. The financials must accurately reflect product development, marketing, and manufacturing strategies described in each section of the plan.

Economic reports for incorporations, how to become CEO or member of board of directors, make earnings and profits and finally reach profitability, dollarization of innovation in industry or service or other business, obtain working capital, holding company off shore (bank accounts on British virgin islands?), market analysis, ltd or corp.,... These reports and analyses are free. Globalization (decentralization) of supply chain and democratization (maybe privatization) in some regions bring new business opportunities for b2c and b2b, a change in social capital, the world in transition - that’s he trend. If there is economic growth, there will be investments (think of Your investor relations), there will be earnings, there will be revenue in the balance sheet, performance of stocks and prosperity. A real options for the future. New economy, e commerce and ebusiness, information technology are headlines of yesterday’s papers in company secretarial wardrobes. You don’t need a case study by the World Bank to see clear. But competitors do not sleep, they are retailing in your future market already. You need quick decisions and fast movements before(!) year-end.