THE VC PROCESS

Evans Venture Partners

California Limited Partnership 9121800010
PO BOX 71351
ARCO-BANK OF AMERICA STATION
Los Angeles, CA 90071

Email: evanspartners @ yahoo.comm

Prepare Yourself For the Venture Capital Process!

by

MERVIN EVANS

You can get prepared for your VC processt by learning what types of questions venture capitalists will ask, what intrigues them, their motives for asking specific questions, and what they want to hear.

Evans Partners's research and development department has completed an extensive study on this topic, and has developed a targeted list of questions VCs typically ask.

What is Venture Capital?

Venture Capital is the process by which investors fund early stage, more risk oriented business endeavors. A venture capital funding arrangement will typically entail relinquishing some level of ownership and control of the business. The investment is usually in the form of stock or an instrument which can be converted into stock at some future date.

Venture capitalists typically expect a 20% to 50% annual return on their investment at the time they are bought out. Some will invest as little as $50,000 and as much as $20 million in any one company, but typical investments range from between $500,000 and $5 million. Management experience is a major consideration in evaluating financing prospects.

How to Approach a Venture Capitalist

Venture Capitalists are not untouchable people, but they are very busy. Telephone conversations should be friendly, but succinct and to the point. Many times the venture capitalist will require a review of your business plan before talking with you. Be willing to send your plan in advance of any conversation, and follow up on the stated date and time mentioned in your cover letter. There are many sources for venture capital and you as the entrepreneur should be willing to solicit several firms. The initial response time is usually several weeks, with the entire deal taking several months.

Remember, this is a long term relationship you are developing. Evans Partners urges Capital Seekers send a investor lead letter and simply wait until the investor makes contact. Do not Call VC MANAGERS!

Required Documentation

Be sure to have all of the following documents on-hand and ready for review before soliciting venture capitalist for funding. They will judge you by your preparedness and knowledge of how to work with them. Executive Summary - a succinct document that outlines: management, profits, strategic position and exit. Business Plan - a detailed document of the company including: business strategy, marketing plan, financial document, competitive analysis. Marketing Material - any document that directly or indirectly relates to the sales of your product/service.

How to Talk to Venture Capitalists

The process of venture funding will take several meetings. During most of the meetings, you and the venture capitalist will be dealing from the business proposal you previously sent him. It is necessary for the venture capitalist to understand your product or service. Bringing along a proto-type or the actual product will go a long way in this process. Stay focused on your business plan. Meetings can sometimes last several hours and you may become talkative. Avoid mentioning any grandiose plans you may have for the future. Also, do not mention any products that were not covered in the business plan. Such conversation could present you as a dreamer, or someone who is trying to run before learning how to walk.

VC Do's and Don'ts There are some general guidelines that can help you significantly in your search for venture capital. You may want to cut out these do's and don'ts and paste them somewhere you can study them before embarking on your meeting with a VC.

Don'ts Do not avoid answering questions. Do not give vague answers. Do not hide significant problems. Do not expect or press for immediate decisions (this works both ways). Do not fixate on pricing. Do not bring your lawyer.

Do's: Be positive and enthusiastic about your company and product/service. Know your minimum deal and walk away if necessary. Remember this is a long term relationship. Negotiate a deal you can live with. Do your homework on the Venture Capitalist. Know the previous deals he has funded and the current structure of his portfolio.

Where to Find a Venture Capitalist

Venture Capitalists often specialize in specific industries. To make your search less time consuming, Evans Partners has a database of these lenders that enables you to search for specific criteria and improve your opportunities for success. Call our Corporate office at 323-299-3471.

Typical Questions Venture Capitalists Would Ask

If you really want to impress a venture capitalist, you have to be quick with smooth answers to the grueling business questions they ask. Being prepared is your best defense, so study the following 74 questions and be prepared to answer all of them next time you visit a venture capitalist. Armed with information as your defense, you're bound to get a better response.

1. What type of business experience does the management team have?
2. Are the members achievers?
3. What motives each team member?
4. Can the team accomplish the job outlined in the business plan?
5. How does your company and product fit into the industry?
6. What are the current market trends?
7. What are the keys to success in your industry?
8. How did you determine total sales of the industry and its growth rate?
9. What industry changes most affect your company's profits?
10. What are the seasonal affects in your industry?
11. What makes your business different?
12. Why does this business have high growth potential?
13. What makes this business situation special?
14. Why will this business succeed?
15. Why is this product or service useful?
16. What will the product do for the user?
17. What is the expected life cycle of the product?
18. How do advances in technology affect your product and business?
19. What is the product liability?
20. What makes this business and product unique?
21. Why will your business succeed when it must compete with larger companies?
22. Does the product meet a specific need or perceived need of the customer?
23. Does the product have brand name recognition?
24. Are there repeat uses for the product?
25. Is this a high-quality or low quality product?
26. Is the consumer the end user of the product?
27. Does this product have mass appeal or single large buyers?
28. Who is your competition?
29. What advantages does your competition have over you?
30. What advantages do you have over your competition?
31. Compared to your competition how do you compete in terms of price, performance, service and warranties?
32. Are there any substitutes for your product?
33. How do you expect the competition to react to your company?
34. If you plan to take market share, how will you do it?
35. What are the critical elements of your marketing plan?
36. Is this primarily a retail or industrial marketing strategy?
37. How important is advertising in your marketing plan?
38. How sensitive are sales to your advertising plan?
39. How will your marketing strategy change as the product/or industry matures?
40. Is direct selling necessary?
41. How large is the customer base?
42. What is the typical demographic of your customer base?
43. What is the lag time between initial buyer contact and the actual sale?
44. What is the capacity of your facility?
45. Where do you see bottlenecks developing?
46. How important is quality control?
47. What is the current backlog?
48. Is the product assembly line based or individually customized?
49. What are the health and safety concerns in producing this product?
50. Who are your suppliers and how long have they been in business?
51. How many sources of suppliers are there?
52. Currently, are there any shortages in components?
53. How many employees do you have?
54. What is the anticipated need in the immediate future?
55. Where does the labor supply come from?
56. What is the employee break down, i.e. full time, part time, managerial staff, support staff, production/service?
57. What is the cost of training?
58. Is the labor force primarily skilled or unskilled workers?
59. Is there a union and what is the company's relationship?
60. How old is your company's equipment?
61. What is the yearly maintenance costs?
62. What are your capital requirements over the next five years?
63. Do your competitors have an advantage due to equipment?
64. Do you lease or own the property/facilities?
65. What are the terms of your lease?
66. How much do you owe on the mortgage?
67. Are the facilities adequate for future expansion based on your business plan?
68. Will the expansion require relocation?
69. Who owns the patent?
70. What licensing arrangements have been made between you and the patent holder?
71. Does anyone else have licensing arrangement? If so how does this impact your company?
72. What is the current research and development?
73. What is the annual expenditure on R&D?
74. How does R&D impact future sales?

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