A venture capitalist is usually a wealthy investor or institution that provides money for business ventures in exchange for equity in a company. The practice was rampant in the 1990s when all of the Dot.com companies emerged on the scene. It still remains an option for business start-ups, but there are certain procedures involved in how to secure venture capital money.
- The first step is to prepare a business plan. This business plan should focus on three areas: A clear explanation as to the purpose of your business, financial information such as projected revenue, and summaries of your management team.
- There is a reason for your business. For example, you may have expertise in software consulting and know there is a large market for it. You have a good grasp on potential customers and understand the nature of the industry. You know the market potential and expect to acquire a 3-5% market share in your first year. All of this information is pertinent. Be specific. This increases your odds of successfully attaining venture capital money.
- The next piece of your business plan will go into revenue projections. Based on market share and the total dollars spent in your industry, you can project how much revenue your business will generate in the first year. All of this information is vital to the venture capitalist.
- The last section of the business plan should focus on the management team. You have selected a group of professionals who have many years of experience in their specific functional area. You need to present these people in a positive way and make the venture capitalist feel confident in your team.
- All of this initial work prepares you for the next step which is finding a venture capitalist to invest in your business. There are many sources available online, in libraries and in Pratt's Guide to Venture Capital. Select a VC that specializes in your field.
- Next, try to set up personal meetings with 3-5 of these VCs. Do not approach them directly with your business plan. Try to arrange introductions through client companies, attorneys or accountants who have worked with them.
- Next, arrange a meeting with them and bring your management team. Put an impressive presentation together and be prepared to answer questions. Be sure to send a thank you letter after the meeting again stressing the market demand for your venture. Most importantly, don't give up.