How To Attract A Venture Capital Firm

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By Jacob Maslow

Welcome to the modern era of business, a competitive and cutthroat environment that requires constant flow of information, decision-making, and capital.  Surrounded by such a world, it can be incredibly daunting to make the right decisions for your company or even make a dent in the market that you are looking to enter.  One of the most difficult sectors of business startups to navigate is the venture capital sector.  Not only is it hard to break into an already established market, it is also difficult to create a unique company to attract venture capitalist firms’ attention.  So, if you are looking to secure startup funding from a large venture capitalist firm, here is where you should start.

Realize What Venture Capital Is

When looking to gain a source of funding from a new investor, it is important to weigh the pros and cons of any given decision.  Learning what venture capital is and what it also is not are important steps in making the right decision.  And to be honest, in defining venture capital, it is easier to say what it is not:

  • Venture capital is not long-term money.  The idea behind venture capitalist investment is a short term, large influx of cash that will grow a company off the ground very quickly, boosting it into a market and letting it define itself very clearly and loudly.  Most venture capital firms require a one thousand percent return on investment within the first five years alone.  So, for example, if your venture capitalist firm gives your company a million dollars, they usually expect a ten million dollar return within the first half of a decade.  This puts immense pressure on yourself and your new company to be successful.
  • Venture capital is not influence-free.  Usually, when you create a venture capitalist company, you go into it realizing that you will have to give up a percentage or a stake in the company you are starting.  It will no longer be exclusively yours because you are entering into a partnership that will require joint effort and input.  

How to Attract Venture Capitalists

To start a venture capitalist company, it is important that you first develop a track record and then gain as much traction as you can.  If you are attempting to attract venture capital, you absolutely must be able to prove yourself over a period of time.  Secondly, you absolutely must refine your business plan.  Venture capitalist investors are not interested in coming on board and having to run your business for you, so make sure that you are fully prepared by narrowing your focus and honing your business model to be foolproof and futureproof.  Third, manage your current cash flow and budget properly.  Venture capitalists are not interested in giving you any money if you have proven that you cannot handle money properly.  Finally, change your expectations.  As mentioned above, it is important to realize that you are entering a partnership where the input from the people that are providing your funding is vital.  You cannot expect to have full control over your business anymore, as the money that is running the business did not come from you.  That money now comes with expectations for input and control over certain facets of your business.

In Summary

To attract a venture capitalist company, you must be completely prepared both beforehand (to attract the investors) and afterwards (to actually handle their expectations).  While there may not be a set contract or verbal expectation, the expectation is there nonetheless.  Best of luck!

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