HOW TO CONVINCE VENTURE CAPITALISTS TO INVEST IN YOUR BUSINESS
HOW TO CONVINCE VENTURE CAPITALISTS TO INVEST IN YOUR BUSINESS
How To Convince Venture Capitalists To Invest In Your Business
Venture capital refers to the finance that investors provide for startup companies as well as small businesses, it is often believed to have the potential of growing on a long-term basis. On a general note, venture capital comes from investors who are captains in the industry, investment banks and any other financial institution. Although, this form of investment necessarily does not take monetary form but it can also be provided in the form of technical or managerial expertise.
Although it can be risky for the investor to put in funds but the potential returns which is above average is an essential attractive payoff. The popularity of venture capital as a source for raising capital, is fast increasing by the day especially for new companies and ventures that have been on operation for less than two years. This becomes essential if the start up lacks access to capital markets, bank loans or their debt instruments. The major downside of this system of funding is that the investors get a share of the equity in the company which gives them the right to have a say in the companies’ decisions.
However, venture capitalists are in no way going to invest in the start ups that do not have a clear value proposition and can not communicate them properly and convincingly. The value proposition would be: the reason why a venture capitalist should put money in your company. This article deals on the crucial aspects in presenting that value proposition effectively and convincingly, in order to secure funding. First, here are two things that every budding entrepreneur should put in place when it comes to evaluating their business plans: make sure the business plan is very realistic, then challenge the assumptions in the plan just to ensure that your idea is worth being invested in.
Is Venture Capital the right step?
A lot of venture capitalists expect 10 times their returns in nothing beyond seven years. They are mostly never interested in the linear growth of your business, this would lead to them putting pressure on you to manage the business to grow sales that would cause an increase on returns. Not every start up can achieve such kind of growth, so as a fund raiser you should bring up a plan that would not only embrace such goal but would also lead to its achievement.”Venture capitalists sit in pitches all day long, and can usually sniff out nonsense. You have to be straight and upfront when discussing your path in business and laid out plans. You have to bear in mind that majority of companies do not want to be ventured back, and there are equally numerous other sources of capital out there: angel investors, family offices, small business loans and lines of credit, grants, and more.”
- Grab the attention of investors: Investors get a lot of jaw breaking and potential ideas every minute, so you would need to make your idea stand out of the crowd. You would need a headline that is noteworthy to cut through the various ideas and grab the attention of the investors. Getting external validation from your industry on what your business is about can go a long way to attract the attention of the investors. This external validation could be from an industry luminary who agreed to be an advisor, a key client with name recognition, an award from a startup showcase or a prominent investor who gives credibility to your raise.
- Be introduced rightly: The worst thing that could happen to a budding entrepreneur looking for funds, would be his mail piling up in the spam box of a potential investor. These investors always rely on a trusted team of advisors alongside friends to send them prominent deals. Now, should someone outside that team introduce you or your idea, the odds most likely would not be in your favor. The most powerful introduction for you would be from someone in the investor’s portfolio, one who has earned the trust of the investor in a way that many have not. Another credible introduction could come from a client who believes so much in your idea and can give it a credible validation as to how it would bring value to the industry. Be sure to avoid asking investors to give you an introduction to another firm, there is a perception that investors tend to only share deals on mediocre level. The best deals are heavily guarded for themselves.
- Building momentum: Just like every writer would add to a good story, you would need to build towards a climax. The headline you gave them has got you an appointment but it would not be enough to put their attention on hold over the next month.
There has to be a constant means of keeping your investors excited about the potential investment, each week try sending an email update that would include a meaningful piece of news that relates to your business, it could be a new client, feature release of the business or recent press coverage.
- Be sure to set expectations: Most investors request your plans for the money that will be raised. An entrepreneur would struggle greatly in persuading venture capitalists unless he/she can confidently give answers to questions such as, what is your set target for a fiscal year? What are the requirements to meet your target? What is the cost involved? Ensure you have set expectations because it is proof to investors that you are willing to thrive in business.
- Fix a deadline: Let there be a fixed deadline, as to when venture capitalists need to send in their decisions on whether they will invest or not. It really does not matter if it is an artificial excuse. It just has to be seemingly valid; the whole point is just to take advantage of the momentum build up which you created and then impose a conclusion. If not done properly, you would be running the risk that your potential investors would delay their decisions indefinitely and continue to ask for of more information and traction.
It is not an impossible task to close this funding without these attributes, but it would require for you to get so much luck which might likely lead to frustration. So, it is best to do yourself the favor of having these attributes mapped out before kicking off any fund raise.
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