Venture capital investors invest capital into businesses. As opposed to regular investors, venture capital investors tend to invest in smaller less-established or struggling businesses. The goal for venture capitalists is to earn significant returns on their investments as opposed to small amounts of capital appreciation. Venture capital investors tend to be sophisticated accredited investors who have a significant amount of experience investing. Venture capitalists are also familiar with market and economic trends and business cycles and often have experience in a variety of industries.
Attracting venture capitalist investments is not always an easy task. There are several ways to go about attempting to obtain capital investments from these investors that can improve the likelihood of attracting these investors. Attending trade shows is one way to gain an audience with a venture capitalist. This can be done by having a booth at a trade show or looking for various conferences that appeal to venture capitalists. While at the trade show be sure that you have a product or professional business plan available to discuss with the venture capitalist.
While audited or reviewed financial statements provide some assurance regarding the quality of your financial data, it is not the end-all with venture capitalists. Venture capitalists are aware that your business may not be fully developed and they tend to buy into ideas as opposed to actual results. Start by outlining your business plan and the market for what you are intending to sell, as well as any competitive advantages you may have over your competition. Detail what your firm needs in terms of both financial resources as well as talent in order to achieve the business plan that you have outlined. Provide information regarding what you believe you will be able to offer to the venture capitalist in terms of financial compensation and control of the organization.
Many venture capitalists have significant amounts of business experience and do not want to accept a position as a passive investor. As such, they attempt to obtain partial control of a board of director seat to push their own agenda through. Be considerate of their concerns but be steadfast in your vision for the company. Detail where you want the company to be and how you will achieve it. Offer them the ability to provide assistance to help you financially and with their expertise. In addition, consider offering them an investment structure that provides some security in their investment, but with the ability to prosper if the business succeeds. An example of an investment structure that provides for this is through convertible preferred stock which offers preferential treatment in times of bankruptcy, but the ability to convert shares to common and prosper on capital appreciation.
Christopher Lee recommends reading Crescent Point Venture Capital for more information on private equity and fundraising.
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