So, You're Looking for Venture Capital?
If you own a high-tech company in any stage with a viable business or business plan, you've got a head start on most other businesses seeking funding. Here are some tips and ideas I've stumbled across in my search.
A Business Plan and Executive Summary Come First
The importance of both an executive summary and business plan cannot be overemphasized. Practically no one will open his door to you without first having read your executive summary. Your one to four page executive summary should introduce your business concept, explain why your business and product are unique, identify your market, demonstrate an exit plan (everyone wants to know how they will get their money back), and, most importantly, describe your management team and credentials. This document should be well written, to the point, grammatically correct and interesting.
If the venture capital firm likes your executive summary, you must be prepared to have a full business plan available. If the firm has to wait a month for it, interest may wane. Therefore, your business plan needs to have been completed, cleaned up and printed before sending your executive summary.
Creating Your Business Plan
Where do you get a business plan? The best business plan will come from you since no one knows your business better. Business plan software is available in your local computer store. I used Business Plan Pro by Palo Alto Software. It is reasonably priced, has many ``template" company business plans to draw ideas from and has excellent technical assistance. You can download a trial version from http://www.palo-alto.com/. An excellent source is Venture Point Tech Coast Small Business Development Center in Irvine funded by the state of California and the U.S. Department of Commerce. They provide high quality advice often at no cost and assist you in creating and/or analyzing your business plan. Contact them at http://www.venturepoint.org/ or (949) 794-7244. Ask for Jay DeLong or Karen Gifford (email@example.com).
Another business plan creation resource is Ana Barbosa at Southern California Edison (800) 3 EDISON.
A good business plan and executive summary may take a month or more to create. (It took me about three months to gather all the material and write mine). Remember, this document must explain your idea clearly to people with money who are looking to invest. This is your E-ticket, so make it good. Your business plan is what people with money will see first. Therefore it must be good!
People With $$$$$$$
Next where do you find Angels with money? There are a lot of people looking for high profit, unique ventures for investment. They come in many varieties and hang out in many places. I told everyone about my business everywhere I went. I was an evangelist for my unique idea and business. I talked to people in bars, on the phone, friends of friends, acquaintances at parties, some were interested, but most had no money. That didn't stop me. I looked in business magazines and papers, called venture clubs and scoured the Internet.
The Internet helps a lot. However, one of my first mistakes was purchasing a venture capital database from a company on the Internet. The company, DataMerge, Inc./Cyberloan.com of Denver, sold me a database it claimed was current and which had many companies whose profiles were supposedly exactly what I was looking for. Well, they chummed me. I took the hook and when I opened the program and started calling, I got a lot of ``he/she doesn't work here anymore and hasn't for over a year," or ``we don't fund in that market," or ``not interested." After examining the program, I found that this ``current" database was more than two years old. Forget that company, and before you buy any database, be sure there is a return policy. This company doesn't have one, and doesn't return phone calls. There are easier, less expensive methods. Read on.
Pratt's Guide to Venture Capital Funding
Here's one of best places to find VC companies to fund your project, whether it be seed, startup, early, first or second stage, mezzanine or restructuring,. Go to your local library's reference section and ask for ``Pratt's Guide to Venture Capital." The Irvine Heritage Park library has the most current version, but earlier years' issues can be helpful, too. Look in the back of the book for the category your business is in and photocopy those pages. Flip to that section and you will find hundreds of firms to study. Yes, I do mean study! This is important, since you will want to speak to the right type of firm. If you are startup, you will want to eliminate companies who fund only mezzanine deals, if you are in California, you will want to eliminate companies who fund only in the Northwest, and so on.
The first thing to do when you open Pratt's Guide is to read all of the pertinent articles in the front of the book. There are tips on writing your business plan, on rating the various companies, how to choose and approach a venture capitalist, how to meet with the venture capitalist and more. Let's say you are a startup in Orange County in an Internet related business. First, does what you think of as a startup match with what the venture capitalist thinks is a startup, or do you fall into the category of a seed? You'd better find out. There are articles on that subject alone.
Next build a rating system for your study phase. I read profiles of several hundred VC firms, crossing off those that definitely did not match my requirements. Then, I rated them according to which of those remaining were mostlikely to work with me. Try and hone your list down to five to 10 firms you rate highest. Pick the three best. Contact them first.
TechCoast 2000 Funding and Resource Directory
What are some other funding sources available? The ``TechCoast 2000 Funding Directory" is an excellent source that concentrates on local funding sources. You may obtain a copy from the TechCoast Venture Network in Tustin. Contact them (714) 505-6493, www.tcvn.org or email at firstname.lastname@example.org. The cost is minimal and well worth the investment.
Venture Capital Clubs
Tech Coast Venture Network (publisher the above-mentioned directory) is an excellent place for you to associate with other business people seeking funding, hear their presentations, pick up tips and methods for finding money. The California Venture Forum in Yorba Linda is an outstanding forum to meet Angels and present your business plan. Contact the organization at (714) 235-8655 or www.calventureforum.org. Often as many as 200 people, many of whom are investors, come to the presentations.
Another place that could lead to funding is www.garage.com. Read the articles and then apply for funding. This is a company headed by Guy Kawasaki, the author and former evangelist for Apple Computer. The questions asked at garage.com will make you think about your business in such precise detail that you when you have completed this (be sure to make a copy of your application) exercise, you will have a head-start on your executive summary and business plan. Download the questions and complete them offline. Make this your best pitch possible. If it makes sense to them, they may fund it.
The July 2000 issue of Entrepreneur Magazine had a good article on venture capital and venture forums. Get it and read it. The August 2000 issue of WWWiz (http://wwwiz.com/issue45/html/article2.html) had an interesting article on a venture forum experience by Tom Bunzel. You will find numerous articles in other business-related newspapers and magazines. Look for the articles and read them all, even if they are not directed toward your specific business. You may find a single idea that enables you to locate your venture capital angel.
John App is a long term resident and businessman in Orange County and can be reached at email@example.com. He may be able to assist your funding efforts.
Why Most Don't Get Funded (by Anyone)
The concept is not unique or compelling
The management team is weak
The returns are unsatisfactory
The business plan is inadequate
There are serious critical risks
There are fatal flaws
You target the wrong money sources
There is no likelihood of a three to five year IPO/Harvest
The projections/milestones are not met.
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