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READ THIS FIRST: A little introspection is always recommended before you start to look actively for funds. You may just want to take one of the tests listed below to see how you do. click here to take quiz #1 - absolute honesty is required! click here to take quiz #2 -- do not be surprised if you only get one light bulb -- the form is not too reliable, but personal survey is very good! HOW TO FIND VC MONEY You need money to grow your
business. Venture capitalists (VCs) have literally billions of dollars
to invest. So, what is the problem? For starters: VC investors are notoriously picky. They typically look at more than 100 business plans for every investment actually made, and at some firms that ratio can be 1,000-to-1. What's more, VCs are interested only in companies capable of dramatic and sustained growth — 20% to 30% per year for the next seven to 10 years. At a 30% growth rate, company with $10 million in sales today will be generating revenues of about $130 million in just 10 years. Then, there is the vision thing – sometimes wrongly labeled “domain expertise”. This is documented in the @WEBO Model for evaluating start ups. A VC fund needs to set its standards high to compete for investors' money for obvious reasons. Investors know that venture capital is risky, and they demand a rate of return that compensates them for that risk. And VC fund managers know that, despite their best efforts, some companies will fail. So the return from successful ventures has to be truly outstanding to produce the required portfolio return. In addition, many venture funds
have $500 million to $1+ billion that must be invested. Their managers can
oversee a dozen or so later-round investments of $20 million to $100 million
each. But funds don't have enough managers to place money in increments of $1
million or less to hundreds of
start-ups. That's good news for more mature
companies. But if you're looking for early-stage financing, focus your search on
the few venture funds that provide seed capital. Or consider angel investors —
individuals or informal groups that provide capital in smaller increments. What comes first, the Idea
or the People? A great idea by itself is not
going to lure venture investors to your company. What is more, not too many VCs
can see a good idea, even if comes in the shape of a 2 X 4 and they get hit with
it over the head! What VCs really
bet on is a management team's ability to respond quickly and effectively to
changes, including the emergence of new competitors, sudden obsolescence of a
key technology or some other crisis. Also
important to VCs is management's ability to handle rapid growth. They want to
see a team that will be able to run all aspects of a much larger operation —
sales, production, marketing, distribution and finance. If VCs don't see that
talent in place, or at least identified and ready to be hired, they are unlikely
to invest — no matter how attractive an idea seems on paper. All Money is Not GreenOnce they decide to back a company, the VC group invests a lot more than cash. Successful VC firms provide portfolio companies with their enormous experience in building companies. Most entrepreneurs who come to
VCs are involved in their first company, strongly believe their idea is
unique and that VCs who do not buy into their idea are stupid. By
contrast, the partners at a VC firm have been closely involved with dozens,
sometimes hundreds, of companies. It is very unlikely that you will encounter a
problem that your VC partners have not seen before. Also, a VC firm that has opened
its wallet to your company will also open its contact list. Its partners will
use their contacts to attract highly qualified people to serve on your board.
They will introduce you to potential customers or companies that can
provide you with key technology, distribution or other services. Some of those
companies may be in your VC's portfolio or in the portfolios of other VC firms
with which they have relationships. Another intangible benefit is
the credibility that VC backing brings. The fact that you have passed the
rigorous due-diligence process imposed by a VC firm boosts your credibility with
bankers and suppliers. How to find a VC?
How do you find a VC? Look for
firms that focus on your industry, company size and business stage. The Internet is the best place
to start. The National Venture Capital Association Web site lists
more than 300 VC firms. The @WEBO site has a few
times that number. Learn how to approach the VC
community at Garage.com. The site focuses on helping early-stage companies get
seed-level financing. It provides mentoring, research, help with developing a
business plan, reference materials and direct links to investors.....they also
want your money! Venture Capital Online is an
information clearinghouse that connects start-ups with venture capitalists. The Venture-Preneurs Network
provides online and face-to-face networking of entrepreneurs, investors and
professional service providers. Most VCs maintain Web sites
that identify the kind of investments they are looking for. Do your homework and
contact only firms for which your company is a good fit. Sending your proposal
off to every name you can find marks you an amateur. Geography is also important. VC
firms prefer to invest in companies located within 50 miles of
their offices. Investors want to visit frequently to stay involved in your
progress — or intervene quickly if you get into trouble. If your idea fits the general
parameters of a venture firm's activities, your business plan will get an
initial review, which may be no more than a look at the plan's executive
summary. Corporate Venture Capital An alternative to traditional VC groups is a little-known source: Many leading U.S. corporations maintain VC arms.
For the recipients of corporate
venture capital, that cash may be less important than other benefits, such as
having a ready market for its products and corporate officers from the larger
company to sit on its board. There's also the cachet of being in the portfolio
of a big-name corporation. Finding a corporate
venture capital investor is another matter. A few, especially technology
companies, deliberately maintain a high profile to attract entrepreneurs. But
often the VC function is tucked away in a corporate-development,
strategic-planning or corporate-finance department. The National Venture Capital Association's Web site lists some corporate VC departments, as do various venture-capital directories found in libraries. Independent VC firms, which often partner with corporate investors, may provide additional leads. Also check the Web sites of likely companies, starting with those who would be likely customers, and then check with the chief financial officer. When all else fails, try Alternative Funding Sources. Conclusion: Realistically, only a small percentage of start ups end up getting funding. Such is the case with our clients. After a thorough review of the business concept and Business Plan, @WEBO may decide, to do one of the following: a. Decline further participation b. Make the business opportunity available to the @WEBO Angel Investment Forum c. Actively seek funds from our Investor Network d. Decide on a direct investment. |
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