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Venture Capital - Preparing The Plan

Written by: Evan Carmichael

Article Overview: Make it so that your mother or grandmother can understand it. Entrepreneurs too often fill their business plans with of acronyms, tech terms, and buzz words. Intermediaries can usually tell after the first paragraph how difficult it will be to raise capital for your business. Condense what you do and what you want into a statement that you can make very promptly in seconds or minutes. If you cannot communicate quickly, you will lose the investor’s interest.

Venture Capital - Preparing The Plan

Venture Capital - How Long It Takes To Get The Money

It will usually take between 3 and 4 months. It is very rare to obtain the money in under this 3 to 4 month period.

Raising money is not like hiring people or purchasing new machinery. It is about building confidence between yourself, your company, and the investor. There is a certain of amount of due diligence that will be needed to build this confidence.

Your ability to project your company in both a strategic and factual way will be critical to your success.

The timing also depends on the sophistication of the entrepreneur. It the financing presentation is well laid it, it will make it much easier for the intermediary to get you in front of a venture capitalist.

Make contact with intermediaries and venture capitalists before you need the money. This way they can track your progress, they know you before you need it and it will make it easier for you to obtain the necessary capital. Nobody likes to be rushed, especially venture capitalists.

Venture Capital - How To Introduce Yourself To A Venture Capitalist

The first option is to approach venture capitalists yourself. This is a very time consuming process and you risk taking your mind and attention away from your business.

The best way to find a venture capitalist is through an intermediary. They know the important players on the street and what they are looking for and investing in. The venture capitalist relies on recommendations of the people they trust. If the intermediary has established friendly relationships with them, it will boost your chances of getting in.

Going after a venture capitalist without an intermediary is like going to court and trying to represent yourself instead of having a lawyer.

Venture Capital - What The Proposal / Executive Summary Looks Like

Make it so that your mother or grandmother can understand it. Entrepreneurs too often fill their business plans with of acronyms, tech terms, and buzz words. Intermediaries can usually tell after the first paragraph how difficult it will be to raise capital for your business.

Condense what you do and what you want into a statement that you can make very promptly in seconds or minutes. If you cannot communicate quickly, you will lose the investor’s interest.

You need to have a logical persuasion chain. You must persuade the venture capitalist to invest in your company just as you would persuade a customer to buy your product or service.

If you cannot explain your business on the back of an envelope, you will not get financed. You need to grab the investor’s attention in the first 3 to 5 minutes. If you cannot get their basic interest, you will not get their money.

Venture capitalists see 2 to 3 deals per day and will say no most of the time. You need to distinguish yourself through clarity.

Prepare an elevator pitch. Imagine getting on an elevator at the 20 th floor of a building with the venture capitalists and getting a commitment by the time you reach the lobby.

Harold Ross’ first prospective for the New Yorker was no more than couple hundred words. It was so clearly laid out that you could read it today, 80 years later and still recognize that it describes the New Yorker.

The venture capitalists will also look to the people behind the company. They are looking to see what the reputations of your chairman and board of directors are. This will help create credibility and trust.

Venture Capital - Why The Venture Capitalist Is Interested In You

Venture capitalists want to make money. They will either see you as an entry point into a new industry that that has potential or one where they are already invested in but you provide an exceptional case.

The venture capitalist makes their decision on two variables: greed and the probability of failure or success. If your company presents a great deal but is accompanied by extraordinarily high risks, the venture capitalist will not invest.

Venture Capital - How To Handle Confidentiality

An intermediary should always sign a confidentiality or non-disclosure agreement (NDA). It is a 1 to 5 page document that acknowledges you have sensitive information that if released could harm your business and it should not be shared.

Venture capitalists, however, will not normally sign a confidentiality agreement. They see so many companies in the same industry that they cannot sign one agreement and risk not being able to invest in other potential good deals.

Related Articles
  Meeting With The Venture Capitalist
  Contacting The Venture Capitalist
  Venture Capital & Recessions
  Phrase du Jour: Venture Tourist
  “Tips For Entrepreneurs In Selecting A Venture Capitalist”

Article Tags: 4 months, building confidence, buzz words, due diligence, entrepreneur, executive summary, first option, grandmother, intermediaries, investor, lawyer, necessary capital, new machinery, proposal, raising money, sophistication, taking your mind, venture capital, venture capitalist, venture capitalists



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