To VC Or Not to VC – What is the State of the Venture Capital Market?

During the second quarter of 2009, U.S. Venture Capital funds raised $ 1.7 billion vs. $ 9.3 billion in the second quarter of 2008, representing a drop of almost 82 percent! This startling statistic reinforces the fact that you MUST be prepared when trying to raise capital with Venture Capital firms. Companies are going after a much smaller pool of capital, so Venture Capital firms will only fund your company if you’re presented in a way that’s professional, memorable and believable.

Here is a checklist of 8 things to address that can increase your chances of gaining interest from Venture Capital firms:

Be honest with yourself – Is your company a viable candidate for Venture Capital?  If you go through all the steps in preparing an Executive Summary/Business Plan, you’ll have the answer to that question.  You may have a very viable business but it may not be a Venture Capital candidate.
Problem or Opportunity – What specific problem or opportunity are you addressing with your product or service?  You need to be clear about the pain or opportunity and how you’re going to reduce costs, increase revenue, reduce time-to-market, etc.
Solution – How are you going to fix the problem?  What hardware, software, and services are you offering?
Market Opportunity – What specific market segment are you targeting?  Remember, there are riches in niches!  You’ll show that you’ve done the research needed to have a strong go-to-market strategy.
Unique Selling Proposition (USP) – What is unique about your product or service offering and why would a client pay you money vs. all the competition in the market?  (for emerging technologies where there isn’t business competition, you’re competing against inertia)
Management Team – Who will be running the business and how are they uniquely qualified to make your company successful?
Financial Projections – Remember, investors will only invest in your company if you can show them how you will make them money.  Your five year financial projections should clearly demonstrate how you will do this…but they need to be believable or you’re wasting your time.  Nothing turns off an investor faster than projections of your company reaching unrealistic revenue targets.
Funding Request – Many business plans fail to include how much capital they require and its uses.  If you are requesting a certain amount for Phase 1 and plan a subsequent round for a later Phase, state that as specifically as you can.

These are only a few areas that must be addressed to be successful in raising the financing you need for your company.  You need to get “thick-skinned” when dealing with rejection because a low percentage of deals actually get funded with Venture Capital.  Following these steps will not guarantee you success but will greatly increase the chances of raising capital for your company when properly prepared.

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