Securing Venture Capital

Prior to the dot-com bust that occurred at the end of the 90s, all a startup needed was an innovative idea and the possibility of an initial public offering (IPO) in order to secure funding from either a venture capital fund or an angel investor. Since the bubble burst, investors have become a bit shrewder, trying to measure several fundamentals such as leadership, market potential, and growth strategy before investing in a startup company.

With this shift entrepreneurs and people running startups have been forced to go back and become more skilled in the craft of securing venture capital. Gone are the days like those seen in the early 90s. Days when entrepreneurs with ideas like Marc Andreessen met venture capitalist John Doerr who is a partner at Silicon Valley titan, Kleiner Perkins Caufield and Byars secures a five million dollar investment with little more than a software program and a slogan of how this one program will change the world. That is all Andreessen had as a college student at the University of Illinois. That investment based on a program called Mosaic that was later renamed Netscape.

Prior to the crash, anything relating to technology was an idea waiting to be funded. Venture capitalists and angel investors were drooling and climbing on top of each other in order to get the next big thing. Multi-million dollar investments in startups like Netscape, Yahoo, Google, and Amazon.com became billion dollar equity holdings on the day shares in the stock went public. Today, initial public offerings happen far less frequently. It is more likely in today's environment for a startup to be acquired by a company and the investors receiving sizable stock shares in the acquiring companies.

With the landscape changing, entrepreneurs must now do things differently in order to have any real chance at securing venture capital. There are four essential elements or stages a startup must have are: a plan, prospects, a solid pitch, and much patience.

Before a startup attempts to meet with an investor he or she must have a plan. This plan is not about securing an investor. It is the startups plan if and when they are funded. Even though many venture capital firms will demand management changes along with their capital infusion, a key for them will be the founder's ideas and plans on how to grow the company and better the product or service.

The second element is to have a prospect. Venture capital firms as well as angel investors focus their attention on specific industries and regions. Eliminating those firms and individuals who have interests outside your area will help you to maximize your attention and resources to those you are more likely to commit to funding your venture.

The third critical element is to have a pitch. Entrepreneurs who enter a meeting without a plan of conversation might as well not have shown up and wasted the time of a potential investor. The lack of a pitch is an indication of a lack of attention and leadership an entrepreneur has in always operating in excellence. A carefully crafted sales pitch is essential. What it is not is a canned presentation given to any and every investor. A successful sales pitch is catered to the mindset of an individual investor. Most sales pitches have a story as the icing for a pitch, whether it is how the company got started or the struggle of the current staff who have given everything to make this dream come to fruition. Lastly, the closing is the critical portion. It is rarely a deciding, take it or leave it close. It is more of a wrapping, bringing the conversation to finality so that the investor knows the ball is in their court and that this is something they should be a part of.

The last element in securing venture capital is patience. It is less element and more practice by the entrepreneurs as the waiting game can last a lot longer than they would like to. Patience is the one ingredient that every individual must have because very rarely is the first pitch the last one you will make. Oftentimes, the entrepreneur will be the salesman continually before investors, analysts, and others who will evaluate the potential of the company. With this comes the need to be calm and time-neutral.

An entrepreneur who wants to secure financing for their company must be diligent, focused and patient. Investors are out there but so are other entrepreneurs with ideas laden with innovation that are competing against you to secure the same dollars from the same investors. Do not get caught up like every other entrepreneur who fails to do the work behind the scenes to make sure they put their best foot forward. The first foot in the door may not be the first funded. But the best foot in the door is sure to be the most funded.