23 May 2017

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Easy Ways to Woo VCs for Funding Your Biz

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Business always requires fund, and the funding types may vary according to the needs and conditions. From the funding angle, a business can be divided into four stages –Seed Stage or Concept Stage, Venture Capital Stage, Private Equity Stage and the finally, Initial Public Offering (IPO) stage.

 The seed stage is when a business is just an idea. All you have will be an idea, a vision, or perhaps, a prototype. And you know that you need funds and may organise it from savings, by borrowing from friends and relatives or going in for a start up loan. Many at times, banks may not be interested in start-ups and there are other options left like Seed Funding or Angel Funding. There are also few VCs who give a hand to concept stage companies.

In the second stage you will have a prototype and a few customers or at least a few who have an interest in your business. A comprehensive capital-raising strategy is essential at this point to target, solicit and raise the required growth capital. And, this is the right time to approach a VC.

Raising venture capital financing requires a strong capital raising strategy which entails building a strong management team, developing a dynamic business plan, researching and gaining access to targeted VCs.

So, here are a few tips for approaching a VC.

Building Up a Team

All the VCs emphasise one point – the team. For the successful development of a company and to raise venture capital, one must develop an experienced, diverse, and synergistic management team. The management will be graded on their industry experience, creativity, commitment, leadership skills and communication skills. The size and depth of the management could be based on the stage of the company's development. It is critical that the management team continues to expand in relation to the company's growth.

Catchy Business Plan

VCs get many proposals and they have very little time to go through them. Hence, the presentation of an entrepreneur is very important. Entrepreneurs should be very articulate and should be able to make a catchy business plan for presentation. As the business plan is the primary capital-raising document, it should communicate the investment opportunity in a comprehensive and concise manner. Explain how you can scale up your business. An investor will back you, only if they can see strong growth potential for your venture.

VC Market Research

Once you are ready for VC funding, the first question comes- Who is the right VC for you? Finding the right VC is not just about finding someone with money. You need to find someone who can understand your concept and technology. That is you need to research VC market and VC portfolios thoroughly to find out the ones who have experience in your area and who are funding entrepreneurs in the same space. A fair bit of googling and networking will help you in this. The short listed VC’s background, management teams, investment strategy, and portfolio investments also should be carefully studied before proposing.

Getting Introduced

Perhaps the most challenging part of developing a successful capital-raising strategy is establishing relationships with targeted VC providers. One way to convince the VC that you are a top notch entrepreneur is to get introduced to them through people whom the VCs trust. Venture capitalists will be more interested in your business if you are introduced to them by someone they know.  There are a number of ways to get introduced to a VC like industry conferences, special events, other entrepreneurs, and professional service providers. Another effective method of introduction is through qualified referrals like banks, lawyers, accountants or other entrepreneurs.

Understanding

VCs are not investing in any company for keeps. Most VCs look to exit the project in about four years and by then the project has to reach a scale where a PE fund gets interested in them or they become the target of an acquisition. The entrepreneur has to be clear about this and has to include exit options in their planning and even in his initial presentations.

Then comes the deal breaker. It plays both ways. How much equity are you willing to give the VC in return for the funds? Or from other side of the table, the VC will question how much salary the entrepreneur is paying himself. Typically, VCs look for what they call an influencing stake; a percentage that lets them have a say in the board.

The Chemistry

This is the final and the most intangible frontier you need to cross– the chemistry between the VC and the investee. This means, the management's goals and objectives must be consistent with the investor's, as both parties are entering into a long term and professionally intimate relationship. The entrepreneur must understand that by taking funds from institutional investors, he has lost independence and control of the company. VC investors should know when to limit their involvement--and entrepreneurs should stand firm on where to draw the line. As long as the company is hitting targets and milestones, it’s pretty easy to have a good relationship with your investor. But the true test comes when the company misses some targets. Best thing is to keep the investors informed.

The global business environment today is highly competitive which requires broader relationship networks, abundant financial resources, and a global presence. VC’s can often bring that exact mix of support for your business in addition to financial funding.

 

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