How to Prepare Your Project for Venture Financing

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Venture Financing

Steps of Fund Raising Process for Your Venture

"The best way to get on the world is to make people believe it's to their advantage to help you" (La Bruvere)

To target and pursue the appropriate professional venture capital providers, it is a must for the venture capital seeker to understand the investment strategy and preferences of various venture capital providers. However great your technology is, you are most likely the only person who understands this. Venture capitalists are usually not technology experts. They think in terms of business and finance and evaluate you and your project based on these merits. You have to learn their language if you wish to succeed in implementing your technological idea and develop it into profitable business. Here are some hints to help you in raising venture capital (VC) for your technological project.

Select Investor Introduce Your Project to Investors Prepare Your Project for Evaluation Prepare Presentation Negotiate the Deal

Decide When To Seek Outside Funds

Select carefully your initial investor

Not every money is the same. From whom you raise capital is often more important than the terms. Benefits and advantages vary with the type of investor. When selecting your investor, you select not just a money source, but a strategic partner. As venture capitalists themselves advise: "Pick your investor carefully, you can divorce your partner but not your investor".

To select the best value-added money source, evaluate the potential investors by

their experience in similar projects and presence of competing projects in their current investment portfolio,
the management role they take in investment projects,
their links with other potential investors and critical service providers that will be useful for future company growth stages and rounds of financing,
personal chemistry.

Introduce Your Project to VC Investor

Introduction to venture capitalists through referral sources

Introduction to venture capitalists through referral sources they respect improve the odds of securing financing. As venture capitalists themselves say: "You need to have trusted referral or otherwise you just waste your time".

Though services of reputed consultancy companies may be too expensive for first-time entrepreneurs at the early stage, some special mutually beneficial arrangements with could be explored. For instance some business incubators and entrepreneurship development institutions have an arrangement with business consultancies according to which the latter charges the start-up entrepreneur only a fraction of their fee at the initial stage provided the enterprise ties up with them for its all future consultancy needs up to a certain milestone, e.g. initial public offering.

Another option would be exchanging consultancy service fees for an equity stake in the company. This option would also be beneficial for the company management, as in order to maximize their profits the consultancy would provide continuous business coaching service to the company they are invested in.

Cold calling on venture capitalists

"In a highly competitive field with many players, you need to be able to articulate your competitive advantage in a matter of minutes, if not seconds. If you cannot, you will lose your prospective customer's attention, and the business" (MoneyHunt, Spenser & Ennico)

Get yourself prepared - you may have not more than one minute for introduction of your project to the prospective investors at the very first meeting. The investors are very busy people who are usually short on time. Take it as a challenge and impress your future financial partners by your professional approach. The introduction will either make or break your opportunity with them. Don't try to explain your technology idea during this minute or ask them to read your 300 page long feasibility report (even if you have it). Your business plan and executive summary are often not of the first importance at this stage either. Investors are yet to be persuaded to read them straight away. To raise their interest, make your project introduction in their language. For this, you need:

Prepare Your Project for Evaluation by VC Investors

You will need to prepare an attractive business plan for potential investors. The order of importance that an investor usually places on your business plan components is:

Key personnel
The market and your marketing strategy
Product or service uniqueness and your ability to protect the technology
The financial statements (balance sheet, income statement, cash flow statement).

Explain also clearly how you expect to provide investors with a return on their investment and how they could realize their financial returns

Prepare Project Presentation

Before you speak to a venture capital investor you should prepare a brief, well-thought-out, oral presentation. You should include the relevant information on:

The company's business
The company's success ingredient
The company's growth prospects
The way in which you plan to achieve the company's objectives
Your key managers and their backgrounds
The amount of financing you require, and the way in which you will use it.

If the venture capital investor is interested as a result of your approach to him, he will probably ask to see a business plan.