Money Order Venture capital is within reach, but you have to work for it. Follow these steps to that deal-closing handshake.
By Art Beroff
Opinions expressed by BIZ Experiences contributors are their own.
Raising venture capital is a lot like painting a room: Theactual painting is the final step. What takes the most time isprepping the job-getting rid of old wallpaper, patching, sandingand cleaning.
In this vein, we understand our "Top 100 Venture CapitalFirms for BIZ Experiencess" list might provide irresistiblefodder for capital-hungry BIZ Experiencess. But before you pick up thephone and start dialing for dollars, think about the prep workrequired to do a good job and be successful. Not sure how to start?The following steps will help:
1. Understand themission. You need to know what you're looking for.First and foremost, you must find a lead investor. A lead investoris the firm that will either do the whole deal or orchestrate theparticipation of other venture firms, with their own capitalcommitments.
2. Form an advisoryboard. For better or for worse, a good number of dealsthat reach the closing table get there because of personalrelationships somewhere along the line. Forming an advisory boarddecreases the degrees of separation between you and your potentialinvestors by increasing the likelihood that one or more of theindustry notables on your board has a relationship with, or is atleast known to, your investors.
3. Secure legalcounsel. A good attorney who's experienced inventure capital transactions may be worth his or her weight in goldwhen it comes time to actually close the deal. But the reason tohire one from the outset, even before you begin negotiating withventure capital firms, is that retaining counsel gives you accessto the attorney's Rolodex and provides entrée to morepotential investors. In addition, your attorney's name will(hopefully) dress up your business plan and, like the advisoryboard, provide a personal link between you and your investors.
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4. Have a business plan andan executive summary at hand. If you're on the linewith investors, there's a good chance they'll ask you foryour business plan. You'd be wise to have it ready to go so youcan send it out immediately. Another important reason to have abusiness plan available is that it forces you to think through thesort of nettling issues that investors raise, because they couldstart asking you all kinds of questions while you're on thephone. And you just won't be able to answer them with anydegree of clarity or conviction unless you've gone through thediscipline of writing a business plan.
Keep in mind, you shouldn't send your full business plan outto investors, even if they ask for it. Send an executive summaryinstead, and include summary projected financials. When you makefollow-up calls, the trick is to make sending your full businessplan a condition of meeting face to face. Here is how the callgoes: "I appreciate that you want to see more based on ourexecutive summary. I will send you our plan, but only under thecondition that you agree to meet in person so I can present it toyou."
Of course, the investor might want to meet with you afterreading just the executive summary. But as great as that would be,it doesn't obviate the need for writing the plan and derivingthe benefits that would result from that exercise. Besides, yournext investor might not be satisfied with only the executivesummary.
5. Line up yourreferences. Remember, luck is where opportunity andpreparation meet. If an investor is itching and wants to talk tovendors, customers, employees, consultants or industry experts, thebest solution to offer is a name and a phone number, not a vague"I'll get back to you." Once again, you have to dothe groundwork. Call your allies ahead of time, tell them theymight get a call, let them know what it's about, and, ifit's practical, guide them toward what they should say.
6. Get warm-bodyintroductions. If points one and two failed to drive themessage home, then perhaps this one will: You'll get furtherfaster with an introduction to investors than you will if you goafter them without one. Maybe it's the saying "It'snot what you know, but who you know." Maybe it's aconspiracy to make sure the rich get richer. Maybe it's justhuman nature. But whatever the reason, avoid contacting people outof the blue if at all possible.
David R. Evanson is a principal at Gregory FCA, an investor relationsfirm.
