A question that I often get asked by entrepreneurs or those inclined towards entrepreneurship is, "How to secure venture capital for my business?" I always tell these people that approaching venture capital firms is something that you should consider if you are trying to build a business that is significantly large. Venture capital firms typically do not get interested in startups that do not have the potential to generate at least $100 million in revenue at some point in time. For smaller businesses, there are other options, e.g. angel investors, friends/family, banks, Small Business Administration, etc.
Finding venture capital firms
If you think that when you need venture capital, all you have to do is to contact one of the partners at a venture capital firm, email a copy of your business plan, and you will be asked to come make a presentation, you are living in a dream world. In fact partners at venture capital firms get spammed with business plans and wherever they go they are approached by "entrepreneurs". So they learn to tune themselves out when they run into such "entrepreneurs". Here are some tips if you are serious about becoming an entrepreneur and if you might need venture capital at some point or already know that you can not even launch your business without venture capital:
Finding venture capital firms
If you think that when you need venture capital, all you have to do is to contact one of the partners at a venture capital firm, email a copy of your business plan, and you will be asked to come make a presentation, you are living in a dream world. In fact partners at venture capital firms get spammed with business plans and wherever they go they are approached by "entrepreneurs". So they learn to tune themselves out when they run into such "entrepreneurs". Here are some tips if you are serious about becoming an entrepreneur and if you might need venture capital at some point or already know that you can not even launch your business without venture capital:
- Start hanging out where the venture capital partners hang out. Well the area country clubs are a starting point, but that is not what I am referring to. Venture capital partners are typically members of most entrepreneur associations. So first find out what entrepreneur organizations make sense for you to join and attend their events regularly. Since venture capital firms typically focus on certain sectors, you must do your research before deciding what organization to join.
- Networking is the keyword here as well as in many other aspects of life. The simple idea behind networking with venture capital folks is to understand what types of companies they fund, what is the process they employ, what are their requirements, and how do they evaluate an investment option. You will need to talk to dozens of folks and attend many meetings before you develop a good understanding of these issues.
- Volunteer for such organizations. You will get an opportunity to work with venture capital firm employees as peers and it is a great way to develop friendships and connections.
- If you are capable of contributing in other ways, for example, by making a presentation at a monthly meeting on an area that you know well, do not miss the opportunity.
- Many entrepreneur organizations offer programs for mentoring or organize business plan competitions. Take advantage of these.
After a couple of months you will be known by other entrepreneurs (who can be a great resource and can also provide you with the right connections) and venture capital partners. At that point, you can start to approach them for your business. By doing so, you can even schedule informal meetings first to get your idea critiqued or for getting some feedback on your business plan. You will get an idea about the kind of questions that you will be asked, you will get an opportunity to polish your business plans, and very likely, you will have a "champion" from the firm who will open the doors for you.
Never email your business plan at random to all the firms that you can find on the Internet. If you are serious about getting venture capital firms to invest in your business, do the legwork. You don't have to know any movers and shakers. You just have to approach them using the techniques above. Remember they are actively looking for good investment opportunities.