The Beginner’s Guide to Securing Venture Capital Funding
When you have a good idea for business, one of the biggest hurdles that you must overcome is coming up with enough money for funding. One way to get the money you need is to seek out venture capital. Venture capital, or VC, can provide you with money from investors who are willing to put money into new business ideas that they like and/or believe can work. While getting venture capital funding could be a dream come true for your business, finding someone who fits in with your world view and company culture to invest in your business can be difficult process. If you’ve never been able to secure a venture capital deal before, here are a few things to keep in mind as a beginner.
Networking is Crucial
Many new entrepreneurs make the mistake of cold emailing venture capital firms to try to get appointments. While this has been known to work occasionally, you probably have a better chance of winning the lottery than getting any money out of this method. A much better approach is to try to network your way to a venture capital deal. If you went to college, were part of a fraternity or you are a member of your local Chamber of Commerce, you may be able to get a meeting with someone who has money to invest.
Venture capitalists are not just investing in a business idea, they are investing in you. If they don’t know you or know someone who recommends you, chances are they’ll see you as too risky and be hesitant to invest in you. Because of this, networking your way to a meeting is usually the best way to increase your odds of getting funding.
Get Confident
When you’re sitting at home on the couch, your business idea probably sounds fantastic and you may feel very confident about its chances. When you are in a meeting with a group of potential investors, you may tense up and not feel as confident about your business idea, especially if your idea and plan is under intense scrutiny. Before you go into any meeting, make sure that you focus and feel confident about your idea. Most venture capitalists are very good in the business world and they can usually read people very well. If you go into the meeting shy and timid, you will probably not be walking out with any money.
Keep it Simple
One of the problems that many new entrepreneurs have when going into a meeting to pitch their idea for funding is that they try to complicate the terms of the potential agreement. They come up with elaborate funding schemes and try to gain the upper hand in the deal somehow. While you don’t want to give up too much of your business ownership just for some money, you don’t want to try to take advantage of anyone. Keep the terms and the contract simple and you will be much more likely to secure a deal. Investors tend to get scared off when they are faced with terms that seem confusing or too complex.
Be Realistic
Many entrepreneurs make the mistake of being too optimistic when pitching a business idea. If you want to impress a potential investor, be a little more cautious and willing to accept that things could go wrong. Many people claim that their projections are very conservative, when in reality, they did not take into consideration many of the potential problems. If you are thorough and do not try to get the investor to believe that your projections are conservative, they will usually respect you more. Try to look at every possible contingency for your business and find out what could go wrong at some point in the future. If you can figure this out and present some solutions to these problems, the investor will be much more receptive.
Andy bootstrapped co-founded CreditCardCompare.com.au, an Australian credit card comparison website, with no debt or outside investment. He writes about managing money and investments on their blog as well as for many top personal finance blogs.