Tips for Venture Capital

1. Be prepared that venture capital investment is a highly selective process – VCs typically invest in only 2% to 5% of the opportunities they see, and they see a lot of proposals. The proposals selected should have potential for high growth in sales, profits and shareholder value and have the management team to achieve that growth.

2. VCs are investing other people’s money and that they are highly regulated to do their job properly. They will need to have a detailed understanding of you and your business before they invest – this takes time, so you must need a lot of patience. The process of raising venture capital will typically take 3 to 6 months.

3. Plan to devote time and effort to the process – it’s worth it. It might help to think of how much product you’d have to sell to generate an equivalent boost to your net assets. You will need to be able to develop your business and sell your products whilst the fundraising process progresses.

5. Remember that venture capital investment is a highly subjective business – it’s got a lot to do with assessing the future – so be prepared to hear some subjective reasons if the VC declines your proposal.

6. Consider using a reputable and knowledgeable intermediary – they will help to focus your efforts and should know the preferences and criteria of likely investors – but you will have to pay them.

7. Keep your information memorandum and presentation short, clear, balanced and up-to-date. Make sure you cover background, current position, products, markets, management, strategy, financials and the deal.

8. In an uncertain world, VCs like facts and figures – rather than projections, guesses and speculations – so do your best to give them what they need.

9. Don’t pull any punches on the weaknesses and threats – all businesses have them and VCs will expect you to know what they are so that you can deal with them.

10. Always keep in mind that VCs back teams – rather than individuals – so make sure you cover the entire key management functions relevant to your business: e.g. general management, marketing, sales, finance, development, production, fulfillment etc. VCs will be looking for both breadth and depth of experience.

11. Don’t assume that VCs know your products, sector or industry, so keep it simple and avoid - or at least be prepared to explain – any jargon. Don’t be afraid to go right back to first principles if necessary.

12. Be direct, open and honest – if you don’t have the answer to a question, say so.

13. Remember that you are selling a stake in your company, so treat VCs the same way you’d treat any potential customer or commercial partner.

14. Be prepared to answer very detailed questions about projected sales and their related direct costs and detailed questions: market drivers, products, actual and potential customers, pricing, volumes, sales and marketing strategy, competition etc. – this is the heart of your proposal.

15. Know what you’ll do if you can’t raise the funding you are looking for – it will do wonders for your credibility.

16. Get advice from a firm that understands venture capital – in the long run it could save you time, money and heartache.