Getting Venture Capitalists Interested in Your Business Idea
by Carrie Hinkel on February 8th, 2008
For big business ideas that go beyond the funding of a bank, turning to venture capitalists can sometimes be the only way to get a large-scale business off the ground. However, with big money at stake, it’s the venture capitalists who are calling the shots; to have the best chance of getting your idea approved, follow these dos and don’ts when trying to woo any venture capitalist:
What to do when trying to win over a venture capitalist
Prepare a top-notch business plan - In order to even get considered by a venture capitalist, you’ll need to have a detailed, yet concise, business plan. Typically a venture capitalist will only meet with 5-10 percent of the individuals who submit business plans.
Be passionate about your idea - If you’re not excited about your idea, how can you expect investors to be? Investors want to know that you are willing to put all of your energy into making your idea a success.
Prepare and practice an “elevator pitch” - An elevator pitch is a compelling presentation about your business idea that can be delivered in about the time it takes to ride in an elevator - about one minute. Many times it’s crucial to have a good elevator pitch in order to get your foot in the door. Your pitch should focus on five points: 1) the idea, 2) how much money you need, 3) what you will use the money for, 4) how much will the investor get back and 5) when will the investor get the money back. That is a lot of information to cover, but with a lot of practice you’ll find that a short presentation can be even more intriguing than a long one - because it leaves listeners eager to hear more.
Know your competition - Many entrepreneurs who are seeking investors are afraid to even mention any competitors, and if they do they’re quick to dismiss them as “irrelevant”. To a venture capitalist, existing competition means that there is a market for your business idea. If you want to impress a venture capitalist, show them that you’ve done the research and know the competition inside and out. Explain their strengths and weaknesses and how your business idea fits into the market. No venture capitalist will believe that your business will put all of the competition out of business, but showing them how your business can compete effectively in the marketplace is sure to impress.
What not to do when trying to win over a venture capitalist
Be a “know it all” - The worst thing you can do when meeting with a venture capitalist company is to act like they are solely a source of money. Remember, they have most likely helped hundreds of other individuals turn their ideas into million-dollar businesses. They have more experience than you and you should acknowledge that and let them know your willingness to accept their expertise.
Be rigid and inflexible - You may have a business idea that caters to the zoo and museum market. However, it’s possible that after meeting with you, a venture capitalist feels your idea is more mass marketable as a product for pet owners. Be willing to veer from your original idea, because being stubborn could very well leave you alone with your idea - with no willing investors.
Be willing to accept any investor’s offer - A venture capitalist wants to know that you are being selective in your choice for investors - that you don’t just see them as a blank check. Once you agree to accept an investment from a venture capitalist, you’ll be partners with them for about three years - so be sure you’ll be able to get along with the active members of the company.
If you’re serious about getting your business off the ground, then you should put as much energy and commitment into finding an investor as you did with coming up with your business idea. Before you begin your search for a venture capitalist, you should have spent countless hours creating a solid business plan and a captivating elevator pitch. Once you are fully prepared and can answer any question about any facet of your business, then you are ready to talk to potential investors.