Raising venture capital is often the key initial step that high tech businesses take. All the big tech names including Google, facebook, Cisco, Apple etc. had a venture capital firm behind them.
The way technology companies and venture capital firms go with each other, you’d think they were like jelly and custard. Indeed, the two are inextricably linked, and have fed off each other to (often) create large amounts of wealth for both groups. If you want to jump on that bandwagon and are wondering about how to go about raising venture capital, we’ve got some words of advice for you.
Before you knock on any expensive office doors for raising venture capital, you must know a little bit about the elite breed of venture capitalists. These are the eagle-eyed guys looking out for that extra special business idea which can make them bucket-loads of money in quick time. While there are thousands of firms, your search for one can be simplified by using a directory such as VCGate (www.vcgate.com).
Venture capital firms invest in (usually) technology intensive firms with a breakthrough idea that has the potential to return three to five times their investment in about five years. Venture capitalists will invest relatively large sums of money, in the region of a few million dollars, for a stake and a very definite say in the running of the target company. They will bring along their money as well as their expertise, and in return will expect the business to spurt, after which they’ll go out as quickly as they came. Since their expectations are so high, venture capitalists will only back a team that displays strong capabilities and vision. That’s the first lesson on how to raise venture capital – you have to knock their socks off before you can get them to part with their money.
Our next tip on raising venture capital is basically horse sense and that is, to be absolutely prepared. We’re sure that you’ve figured out by now that a venture capitalist is not your friendly neighborhood banker-type of person. He will ask you all kinds of uncomfortable and incisive questions, for which you’d better have a good answer. Keep your business plan ready, and know it better than the back of your hand. It’s worthwhile consulting an expert advisor such as Venture Planning Associates (www.ventureplan.com) who specialize in assisting entrepreneurs in need of funding.
One thing to bear in mind is that the investors’ interest lies in the growth potential of your business, and the returns it can hope to generate. Remember, they don’t care about earning an interest on their investment; they’re after much bigger stuff, which is the valuation of your business a few years down the line. In other words, they will look for opportunities to sell their stake or the business altogether, at an enormous premium. So, be prepared to tell them how they can get out as well!
But passing that test is not enough! You will have to convince the investors of your unshakeable commitment to the project. Ironically, if you ask fellow entrepreneurs how to raise venture capital successfully, they’ll probably advise you to invest some of your own money first. This is because venture capitalists will measure your commitment not only by the hours of work you’re eager to put in, but also by the dollars that you’re willing to invest, or the (voluntary) pay cut you suggest. So, be prepared to put your money where your mouth is.
And finally, here’s our most important advice on how to raise venture capital, and that is to be persevering. Be prepared to fight it out, to wait and also have doors slammed in your face. If your idea is sound and the proposition irresistible, you will find it easy raising venture capital. Just don’t expect it to be a piece of cake!