The decision to welcome the help of outside investors is never an easy one, so it seems unfair that after most businesses make the decision of turning to venture capital they then have to embark on an arduous path towards gaining a windfall.
(The path to success acquiring venture capital can be a long and winding one - but ultimately rewarding too. Image: FitSmallBusiness)
The last thing investors want is to lose money and this means that forensic levels of research are required to go into the analysis of a business idea before they agree to part with their cash.
Because of this, it can be profoundly difficult to build an interest in your endeavour - especially if you’re seen as an inexperienced entrepreneur.
Developing a level of appeal for your business ideas and ambitions is essential in attaining venture capital, but this can be a tricky process for founders. Luckily, there’s plenty of schools of thought on how entrepreneurs can build an attractive proposition to investors. Let’s take a look at six significant steps you can take to make your business more attractive to venture capital firms:
Get your financials in check
You may have faith in the quality of your USP and general business model, but it’s impossible to assume this faith will be shared by anyone else.
Ensuring the certification of your numbers and processes from a reputable accounting firm will pay dividends in building a level of trust between your figures and the investor reading them.
Furthermore, this approach will provide you with an insight into the true value of your company and reaffirm your proposed offers and counter-offers to potential lenders.
Having officially backed up numbers will save you time, cost and may even give you the chance to increase your available leverage. Be sure to get your business audited before propositioning venture capital firms. The length of the audit doesn’t have to be long, but ideally the more years you’re accountable for, the more chance you have of winning your prospective investor’s trust.
Networking may pay dividends
There are very few areas of life where it doesn’t benefit you to conduct a little bit of networking, and in the world of acquiring venture capital, it’s no different.
It’s rarely ‘what you know,’ but ‘who you know,’ as the saying goes - and in an entrepreneurial world, it’s great to conduct a little bit of networking in order to make a soft sell of your pitch in a more relaxing environment.
While this approach would require a little bit of self-confidence to engage in, it makes for an excellent tactic in more ways than one. For example, it would be great if you ran into the perfect investor who loved your informal pitch enough to declare their interest in your business - but it would also be an excellent experience if you received some constructive criticism of your soft sell prior to wasting time and money on a pitch that would’ve otherwise been picked apart.
Optimise your margins
It’s likely that we’ve all been in a position in our lives where we feel the need to squeeze every penny, and this has never been more pertinent than when formulating a cash flow forecast in a bid to attract venture capital.
The Catch 22 here is that most newer businesses need to spend money to keep afloat - and the likely reason that you’re even looking for the support of an external investor is that you need a windfall to match your spending ambition. But it’s vital that you demonstrate your ability to maintain careful financial control of your endeavour, and show it to venture capital firms in a way that highlights your aversion to superfluous spending.
Seek out venture capital endeavours that cater to your business
(Image showing demographics of U.S. venture capitalists. Image: Statista)
Different venture capital firms cater to different areas in the industry. For example, some boast a portfolio centered around remote AR, while others could be focusing on specific countries.
One such company is Aybuben Ventures, which focuses (but not limits) its investments on Armenian entrepreneurs around the globe. Its founder, Alexander Smbatyan said: “Armenian entrepreneurs and professionals have successfully created some of the most advanced technologies either by starting their own companies and/or working in other companies around the world. We are not limiting the fund people within Armenia, this would be shortsighted and irrational. Armenians live all over the world and they are proud of their culture and don’t want to lose their identity. Potentially this creates a huge global pool of entrepreneurs, professionals, capital, companies and knowledge which can be leveraged and scaled in any of the world's economies.”
This illustrates the diversity of potential investors out there who could be interested in providing for your business to flourish.
With proper research and preparation, businesses in various niches with different backgrounds can find a suitable investor.
Formal pitches can be time-consuming work and expensive, so it really pays to take the time to conduct some research into the venture capital firms that may have a significant interest in investing in your idea.
Ambition is good, but missing budgets could be fatal
Of course, you have faith in your business, no entrepreneur would be very successful if they didn’t believe in their own endeavour. But it’s important to not overreach when budgeting prior to seeking funds.
The most vital part of pitching your business to a potential investor hinges on establishing a level of trust and confidence in your vision. If your company evidently fails to hit its financial targets then it will inevitably plant seeds of doubt into the minds of your venture capital firm’s decision-makers.
On the flip side, if you beat your numbers, the chances are that investors would move faster to close a deal through fear of losing the transaction.
Finally, remember to practice patience. Attaining capital from external sources is almost always a drawn-out process. Fundraising usually lasts around six months but there’s always a chance it will take longer - particularly if your endeavour is new and yet to gain a track record of hitting its targets.
It could be tempting to make concessions in order to close on your windfall faster, but be sure to carefully select your desired figures and equity and set limits. The chances are that in a few years down the line you’ll be reaping the rewards of your more measured approach.