A venture capitalist reveals what you need to knowBy Mike SageFounder of Capital Now and author of Capital Now CompleteFree Trial copy available at http://www.venturecapitalguru.comThe mere sound of t...
A venture capitalist reveals what you need to know
By Mike Sage
Founder of Capital Now and author of Capital Now Complete
Free Trial copy available at http://www.venturecapitalguru.com
The mere sound of the words "venture capital" can elicit a whole range of emotional responses from entrepreneurs, mostly unfavorable. It's not hard to understand. The venture capital industry has done little to provide the necessary tools and educational programs to help entrepreneurs learn how to reach them.
Some advisers believe that the marketing model best explains raising venture capital. This model simply applies the marketing principles of the 4 Ps (Product, Promotion, Place, and Price) to the sale of equity. The marketing model, however, is really most useful in explaining the venture capital process and its dynamic relationships. Entrepreneurs who successfully raise venture capital also master a personal level of communication that is best explained by the relationship model.
Ultimately, to succeed in closing on venture capital you must learn how to build a relationship with a venture capital investor ("VC"). While the marketing model helps to explain how to maneuver in the venture capital environment, the relationship model addresses the critical nuances of how to communicate with a VC. For example: How do you talk to a VC? How do you manage the first meeting? How do you create materials that best answer their questions? What's motivating your VC? To successfully relate with a VC you need to learn how they see the process and how they think during its evolution.
The first step to getting inside the head of a VC is to learn about his world and how he operates within it. You can think of it as targeted market research. This involves learning about the brief history of venture capital and how the industry structure has evolved. Next is to learn the current trends that are affecting the environment for VCs and the pressures they encounter as they seek to invest. Once you learn about their world you need to learn about their individual firm structures and how it affects the way they look at you. This involves understanding how to differentiate venture capital firms by their legal, organizational, investment and fund structures. Now you are ready to understand how a VC will analyze you and your business, thereby enabling you to position your business accordingly.
Once you have completed this preparation you are ready to embark on the process some refer to as the "Courtship." You need to learn how to screen prospective VCs and make initial contact, crucial to how your relationship will develop. You need to learn how to establish the foundations for building a relationship and the elements for a great first meeting. The onus is on the entrepreneur to figure it all out. So you can see why many entrepreneurs are frustrated and disgusted by their lack of success. It's a lot to learn in a short time-pressured period and many are either unable or unwilling to decipher the analytical framework for optimizing success.
Today, the investment climate for venture capital is more treacherous than ever as exogenous events inflame the anathema to investing---uncertainty. Even during the best of times, a severe lack of knowledge and preparation caused the average entrepreneur to struggle with raising venture capital.
If you are able to attract a potential venture capital investor you still need to learn a whole new language and mindset to make it through due diligence and negotiate issues concerning valuation, the term sheet and the final investment agreement. Naturally, your ability to make it through these hurdles will be greatly influenced by the strength of your budding personal relationship with the VC. Fortunately, professionals are more available at this stage to help mediate if you are able to make it that far.
It is indisputable, the majority of entrepreneurs who successfully raise venture capital and exploit all it has to offer, learn both to master the venture capital process and the venture capital relationship.
The advantage of conducting a capital campaign prepared with the help of an expert who can quickly convey and execute on these critical relationship concepts will enable you to break from the heard and optimize your efforts for attracting venture capital. Most of the time they operate in an unofficial capacity and are therefore rare and difficult to find. The best are VCs who have chosen to reduce their investment activities and are willing to work with entrepreneurs.
This is where Capital Now excels. First there is no better source for learning about how to relate with a VC than from a real VC. Our comprehensive manual: Capital Now Complete is the foundation of knowledge covering the venture capital process and how a VC thinks as only a VC can tell it. It explains all the details for how to screen, contact, meet, talk and negotiate with a VC. A special section featured throughout the book called Investor Thoughts, conveys my specific comments about what your VC is thinking through every step of the process. Then you have the opportunity for Mentoring with me to help you with your individual needs and circumstances.
Our clients have benefited by getting through the doors of premier venture capital firms and achieving successful outcomes in less time for less money with less distraction from their business.
Entrepreneurs who successfully raise venture capital learn both to master the venture capital process and the venture capital relationship. There is no better way to learn how to do it than to learn from a VC.
Mike Sage, Founder of Capital Now (http://www.venturecapitalguru.com), has been an early stage venture capital investor with two major funds as well as an entrepreneur starting businesses. Mike can be reached at email@example.com.