How to Raise Money From Angels and Venture Capitalists

In representing a group of venture capitalist firms in the western states not so long ago, I learned just how important the business plan process is in raising money for a business. My responsibility was to look for young companies that showed promise, do some due diligence and then if the company still looked promising, I would select one or two venture capital firms interested in the market involved and turn my recommendation and report over to them.

It’s important to realize we are talking about a process, not a single act of writing a plan and submitting it. The decision to finance or not finance can occur at any point in the process. So understanding the process can make the difference between success or failure.

Your objective is to create sufficient interest in your business that the investor will consider your plan viable and want to meet with you. The business plan alone won’t get you the money.

In general, venture capitalists are reluctant to fund start-ups that have no financial history. After a company has been in the market for three or more years, they have a record of success or failure in the marketing of their product or service. At that point, the venture capitalist can learn enough about the company and its product or service to evaluate the degree of risk.

When you’re looking for seed money to start a business, the most likely source, other than friends or relatives, is the angel investor. They are ready to invest with limited or no business history, but the amounts of money are usually smaller than what the venture capitalist is willing to invest. If you decide to seek out an Angel, you can go to the Internet and post information about your company on Angel investors visit the site often.

But, there is an exception. When a company comes up with a product or service that is truly a breakthrough in design or technology and stands alone in the marketplace, investors, with checkbooks in hand and minimal concern for their business history, are ready to deal.

When the company is ready to go to the market for capital, the need for a business plan comes front and center. While there is no shortage of Internet and professional sources of information on the recommended outline for a business plan, the important thing is to have the information the investor wants in creditable form. While some entrepreneurs have written their own business plans, if the money involved is substantial, hiring a consultant to write the plan seems to be the preferred course. Depending on the size of company and the complexity of the business, costs for the plan can run from $4,000 to $35,000 or more.

While there are many important information needs that must be provided in a business plan, there are four questions that are a good place to start:
1. Why does the market need this product or service?
2. How big is the market and what will your share be?
3. What’s your competitive edge; how will you protect your intellectual property or technology?
4. How much money do you need and how will you spend it?

Article Source:

Leave a Reply

Your email address will not be published. Required fields are marked *