Venture Capital isn’t available to every business that needs funding assistance. Venture Capital is appropriate for high-growth companies that are capable of reaching at least $25 million in sales in five years. Venture capitalists most often require a percentage of your company to hand over a huge bulk of money to help with your startup company. A Venture Capital company most often requires a place as a board member within your company as well.
Just because you’re willing to give a percentage of your company’s assets and willing to allow a Venture Capital company to act as a board member, this doesn’t mean it’s a done deal. There is more required for you to obtain Venture Capital. “One of the first hallmarks we look for is whether this is a high growth area or does this company have the potential for exceptional growth – growth that’s higher than you see in the typical Fortune 1000 company,” says Maha Ibrahim, a general partner in Canaan Partners, a venture capital firm with offices in the U.S., India, and Israel. “We want to invest in companies that will grow by leaps and bounds over the next five-to-ten years so that it justifies going to the public market or provides an exceptional exit that creates enterprise value.”
Do you have what it takes to get approved for Venture Capital? Venture capitalists are in the business of making money for their investors – this is a risky business. Technology and life sciences have recently been receiving the most VC investments. “There are a number of areas we’ve identified as ripe for venture capital investment – digital media, enterprise software, semi-conductors, and some service plays,” Ibrahim says. “There are other sectors that VCs tend to avoid, including consulting or professional service-oriented companies, which are based more on people and human resources, and less on technology and scalable intellectual property”, she adds.
If a VC looks attractive to you and you feel your company fits the criteria needed to get VC backing then it’s time to prepare your company for approaching VCs. First impressions are lasting, it is important to be prepared and to have a great pitch. Be very clear to the answers to the questions that all potential investors ask. Develop a clear and impressive PowerPoint presentation as long as 20-30 pages. This will help you in your presentations. Presentations could be an hour to an hour and half long.
Many questions and answers will be covered in these presentations. Look to include the following in your presentation:
- What is your business plan? Include product details and explain your marketing edge.
- Why are you raising capital, and how will you invest it? Be specific in your needs and be specific on what your VC will be used for.
- Specify who is in your committee and why these parties are better than others that may be suited as company board members. “Most venture capitalists say they invest in people and management teams, first and foremost,” Ibrahim says. “Their investment is essentially a bet that your team will win in the marketplace.”
The presentation is complete now it is time to target investors who match your business plan. Just as your presentation can make or break your funding campaign so could choosing the wrong investor. Every firm has a different investment plan. Some investors only help certain types of businesses. Some investors only help companies in the startup stage of a business, while others only participate in businesses that have longevity.
Do your homework when researching VC firms and know the companies they have backed. Talk to everyone, including companies who have been through the process of raising venture capital and seek expert advice, like that of Efraim Landa.