Venturepreneur:

Venture Financing

Step-by-Step Guide To Obtaining Venture Capital

Raising Funds for Your Start-up Venture a Road Map To Venture Financing

By: Vadim Kotelnikov

Founder, Ten3 Business e-Coach Inspiration and Innovation unlimited!

"Most venture capitalists believe that ideas are a dime a dozen: only execution skills count." ~ William A. Sahlman

 

 

Step-by-Step Guide To Venture Financing Venture Presentation Guidelines Start-up Business Plan: Executive Summary Start-up Business Plan Start-up Business Plan: Executive Summary Milestone Chart Cash Flow Forecast Management Team Start-up Business Plan Due Diligence Worksheet Investors Selection Criteria: Business Anagels and VC Firms Due Diligence: Study Areas Initial Screening: Company Assessment Worksheet Initial Screening: Company Assessment Worksheet Due Diligence Negotiating and Closing the Deal Valuation of a Start-up Company 1000ventures.com Legal Contract: Structuring the Deal Funding: Typical Terms of Preferred Stock Issued to Venture Capitalists Venture Financing Ten3 Business e-Coach: why, what, and how Venture Management Making the Best of the Venture Capital Obtained Venture Financing - Investment Opportunity Evaluation by Investors Venture Presentation, Initial Screening, Due Diligence, Contract Negotiation

Prepare Extensively Before Approaching Investors

Finding suitable investors is one of the biggest challenges for the entrepreneur in a company's early stage. The major hurdles are:

To target and pursue suitable investors, it is a must for a venture capital seeker to understand their investment strategy and preferences.

To communicate successfully with venture capital investors, you need to adapt to their map of reality. Venture capitalists are financing professionals, they are not experts in your technology area.

They think in terms of business and finance and evaluate you and your venture based on these merits. You need to learn their language and demonstrate sound venture planning and business skills if you wish to succeed in implementing your idea and develop it into a profitable business.

This step-by-step guide will help you achieve this goal.

Selecting Investor      Introducing Your Venture to  Investors     Venture Presentation     Venture Evaluation     Negotiating and Closing the Deal

Decide When To Seek Outside Funds

 

Bootstrapping

Try to finance personally and bootstrap your firm as long as possible until the need for external growth finance becomes evident and unavoidable.

Select carefully your initial  investor

Not every money is the same. In fact, from whom you raise capital is often more important than the terms. Benefits and advantages vary with the type of investor. When selecting your investor, you select not just a money source, but a strategic partner. As venture capitalists advise: "Pick your investor carefully, you can divorce your partner but not your investor".

To select the best value-added money source, evaluate the potential investors by 

  • their experience in similar projects and presence of competing projects in their current investment portfolio, 

  • the management role they take in investment projects,

  • their links with other potential investors and critical service providers that will be useful for future company growth stages and rounds of financing,

  • personal chemistry.

 Discover more!

Venture Map to Financing

The Funding Round Chart

Preparing a Venture Proposal

Venture Capital Basics: Recommendations to Entrepreneurs

Venture First Round Funding Trends in Silicon Valley

Private Placements

Alternative Financing: VC is Not the Only Way

Criteria for Selection of Prospective Investors

Types of Financing & Debt vs. Equity

Sample Venture Capital Finder's Fee Agreements

Investment Opportunity Evaluation by Venture Capital Investors

Angel Investors Funding Application Criteria (for businesses located in USA and Canada)

Using Intellectual Property Assets to Finance Your Business

Venture Planning Chart, Definitions, and Concepts

Venture Planning Checklist

Dealing with Banks

Documentation Required to Process a Commercial Loan

 

 

 

 

Introduce Your Project  to Venture Capital Investor

Introduction to venture capitalists through referral sources

Introduction to venture capitalists through referral sources they respect improve the odds of securing financing. As venture capitalists themselves say: "You need to have  trusted referral or otherwise you just waste your time."

 

Though services of reputed consultancy companies may be too expensive for first-time entrepreneurs at the early stage, some  special mutually beneficial arrangements with could be explored. For instance some business incubators and entrepreneurship development institutions have an arrangement with business consultancies according to which the latter charges the start-up entrepreneur only a fraction of their fee at the initial stage provided the enterprise ties up with them for its all future consultancy needs up to a certain milestone, e.g. initial public offering.

Another option would be exchanging consultancy service fees for an equity stake in the company. This option would also be beneficial for the company management, as in order to maximize their profits the consultancy would provide continuous business coaching service to the company they are invested in.

Cold calling on venture capitalists

"In a highly competitive field with many players, you need to be able to articulate your competitive advantage in a matter of minutes, if not seconds. If you cannot, you will lose your prospective customer's attention, and the business"

~ MoneyHunt, Spenser & Ennico

Do your home work and be ready to make an impressive introduction of your venture within a minute. Investors are usually short on time. Take it as a challenge and try to impress your future financial partners with your professional approach. The introduction will either make or break your opportunity with them. Don't try to explain them your technology idea during this minute. Your business plan and executive summary are often not of the first importance at this very first stage either. Why would they spontaneously get interested in your stuff? Your first task is to compel your potential investors to find out more and fix the meeting for your venture presentation. To achieve this, you need two documents:

Prepare Your Venture Presentation

Before you speak to a venture capital investor you should prepare a brief, well-thought-out, oral presentation. You should include the relevant information on:

  • The company's business

  • The company's success ingredient

  • The company's growth prospects

  • The way in which you plan to achieve the company's objectives

  • Your key managers and their backgrounds

  • The amount of financing you require, and the way in which you will use it. 

If the venture capital investor is interested as a result of your approach to him, he will probably ask to see a business plan.

 Discover more!

How to Communicate Effectively Your Ideas to Others

Effective Presentations: What Makes an Audience Listen

Guidelines for Presenting High-growth Companies to Investors

What Are the Venture Capitalists' Investment Criteria?

Language of the Venture Capital

How to Prepare an Effective Venture Fair Presentation - 8 Issues in 8 Minutes

How to Make an Effective Venture Presentation

Prepare Your Project for Evaluation by VC Investors

You need to prepare a private placement memorandum and a high-quality business plan for potential investors. Business plans are an important test of clarity of thinking and clarity of the the business. The order of importance that an investor usually places on your business plan components is:

Explain also clearly how you expect to provide investors with a return on their investment and how they could realize their financial returns. Remember, that VCs don't invest based on financial projections, but is they don't pass the reasonability test, you won't get funded. Financials are a sanity check.

To be on the same length with your prospective venture capital investors, have you business plan reviewed and tuned up by a venture capitalist.

 

 Discover more!

Preparing Your Venture Proposal

Selecting & Valuating Investment Opportunity (slide show)

Private Placement Memorandum

Start-Up Business Plan

Business Plan: What Every Investor Wants to Know

Business Planning Chart

Start-up Business Plan

How Investors Read a Business Plan

Business Plan DOs and DON'Ts

Humorous Business Plans

Financial Success

Due Diligence

Investigating Management Team and Related Due Diligence Items

Due Diligence Worksheet

 

"Business Plan Pro helped me raise the equity for a $20 million start-up venture. If you are writing a business plan, stop wasting your valuable time reinventing the wheel and try Business Plan Pro" ~ Mark Lovelance

 

 

 

 

Negotiate, Valuate, and Close the Deal

 

Be prepared to be flexible in your approach because many venture capital firms prefer to structure deals themselves. The venture capital firm may propose a funding package that contains various forms of finance. Because the question of the funding package is not only complex but also very important to you, consult your attorney beforehand. The venture capital firm will value your proposed business and combine this with the required rate of return to decide on the type and level of investment that it is prepared to make in exchange for a percentage of equity proportional to the risk it will incur. The value of your company is the future cash that can be taken out of the business, discounted back to the present.

Get ready to share your project management, if required. Your company should now concentrate on business rather that technology development. Many venture capital firms have pool of trusted professional business managers.

 

 Discover more!

Equity Investor's Compensation

Ways of Realization of Financial Returns for Investors

Business Negotiation Tips

Venture Valuation and Keeping Your Share

Valuation of a Start-up Company

Small Business Valuation

Valuation Quantification Techniques

How To Structure Your Deal

Structuring the Deal (slide show)

Structuring the Deal: The Key Terms for Most Seed Investments

Typical Terms of Preferred Stock Issued to Venture Capitalists

Making the Best of the Venture Capital Obtained

 

 

 

Venture Financing

Complete "A to Z" Smart & Fast guide

Make your business attractive to investors!

Understand the Venture Financing Chain

Understand the requirements of Venture Capital Investors

Follow unique Step-by-step Guide to Venture Financing

New-generation e-book + 40 slides