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How should you select a venture capital partner?
Look for a venture capital firm that will:
To make a successful match possible, be certain that the firm's partners are:
Your best chance for success lies with a firm that is:
Why should I be careful about choosing a venture capital firm?
A venture capital partnership is like a marriage. While both parties can reap many genuine benefits from the relationship, a venture capital partnership may have its share of problems. Communication is vital so that expectations on both sides are clear. It's also important for each party to accept both the good and the bad aspects of the relationship, and be able to count on each other through the entire process of building a company. Given the amount of time, effort, and money that went into forming the partnership, it's easy to understand the unwillingness of a funding partner to dissolve the relationship. In fact, once the partnership is formed, the only ways for an investor to exit a deal are through IPO, merger or acquisition, redemption, or bankruptcy.
What You Need To Secure VC Financing
You will need a
Often a VC does not have time to read your full business proposal but will read you Summary Presentation. These documents have to be compelling to stand out from all the other business plans and proposals piling up on the Venture Capitalists desk. Follow the guidelines from "The Venture Capitalist Handbook- An entrepreneurs guide to obtaining capital to start a business, buy a business or expand an existing business" by David Gladstone. Here are some of the salient points on Summaries and Proposals.
What you Should Include in a Summary
This should be no longer than 3 pages.Once the summary has whetted the VCs appetite -you have a better chance of getting your proposal read.
Company (Name & Address, Phone and Fax number)
Contact (Person who VC can talk to)
Type of Business (One sentence)
Company Summary
Management (Outline key management - emphasise relevant experience and history of achievements)
Product/Service and Competition (Description -short and succinct)
Funds Requested (Amount, type of equity, % of company)
Use Proceeds: (Briefly outline how you plan to use the funds)
Financial History (a short table)
Financial Projections (in short table form)
Exit (Outline how the VC can make money by detailing your exit strategy -going public, trade sale etc.. Give a time frame)
Structure (include if your company has a complicated investment structure -i.e. existence of other VCs, preferred shares, warrants etc.)
You want to have shown the VC that:
Management has experience
The Profit Opportunities clearly exist
The uniqueness of your product
A potential exit strategy from the investment
What you should include in a Business Proposal
A Business proposal is not a business plan. It is a proposal and should suggest how you and the VC can make money. It is a promotional document selling the company to an investor. After reading a sound business proposal and doing some preliminary research a VC usually knows if they want to invest in the company. Be succinct. The major sections should include the following:
Summary
Business and its future (general, nature of the business, business history, business of the future, uniqueness, product or service, customers, industry/market, competition, marketing, production, employees, suppliers, subcontractors, equipment, property, patents and trademarks, R&D, litigation, government regulations, conflicts of interest, backlog, insurance, taxes, corporate structure, publications and associations)
Management (Directors and offices, Key employees, management fidelity, remuneration, stock options, stock option plan, principal shareholders, employment agreements, conflict of interest, consultants, accountants, lawyers, bankers and others)
Description of the financing (proposed financing, capital structure, collateral for the financing if debt, guarantees if debt, conditions, reporting, use of proceeds, ownership, dilution, fees paid, investor involvement)
Risk Factors (limited operating history, limited resources, limited management experience, market uncertainties, production uncertainties, liquidation, dependence on key management, what could go wrong, other)
Return on investment and exit (public offering, sale, buyback, return on investment)
Analysis of operations and projections (General, ratio analysis, results of operation, financial conditions, contingent liabilities)
Financial statements (complete support documentation -audited if possible -make sure they are current and not 6 months old)
Projections (annual projections for next 5 years, monthly cash flow of next 12 months)
Illustrative information (Product literature, brochures, articles and pictures)