Why should I raise Venture Capital?
Most companies seek to raise venture capital to support or stimulate economic growth.
Other companies raise venture funding to establish credibility or to access resource
networks which their venture capital partners have developed through years of experience.
A seasoned venture partner often becomes a valuable confidant, advisor and sounding
board for an otherwise lonely chief executive or founder.
Certainly, venture capital financing is not a prerequisite for success. Many
companies, both private and public, have achieved success absent venture funding
(e.g. United Parcel Service and Microsoft Corporation). in fact, only 276 companies
received their first round of institutional venture funding in.
Today's global business environment is increasingly competitive requiring decisiveness,
broader relationship networks, abundant financial resources, and a global presence
in order to compete effectively. The venture capital relationship can often
bring that exact mix of support in addition to financial funding. Examples of such
beneficial partnerships abound among prominent companies e.g., Nextel Communications,
Compaq Computer, Powersoft, Staples Office Supply, Wellfleet Communications and
others.
How do I find venture capital?
Begin by identifying a list of venture capitalists whose investment preferences
match your needs and company profile with regards to size of investment, stage of
development, industry and geographic location. Over 600 active institutional
venture capital firms manage over $35 billion of capital available for investment
in early, expansion and late stage growth companies. "Pratt's Guide to Venture
Capital Sources" is a valuable resource for any company seeking to raise venture
funding. It is a list of active venture firms published annually by Venture
Economics including each firms' location, investment preferences, contact persons
and capital pool.
Make contact with prospective investors through a respected referral such as an
attorney, accountant, consultant or business broker. As a rule, over one hundred
investment proposals are reviewed for every one company that receives venture funding.
Most venture capitalists will respond to a cold call or business plan which arrives
"across the transom", but a respected referral will usually establish a higher standard
of quality and accelerate a response.
Limit your search to a manageable number of investor candidates, preferably six
or less. Educating investors requires substantial senior management time and
distracts attention from day to day business operations. Choosing venture
firms located in close geographic proximity will expedite initial meetings and screening.
A business plan and executive summary should be developed by the CEO with input
from senior management. Allow ample time to complete fund-raising, usually
two to six months, and budget the maximum time for business planning purposes to
avoid negotiating from weakness. Investment banks will assist companies raising
$5 million or more for a fee, which helps to mitigate distraction from business
operations. Smaller financings are routinely completed independently by management
without outside assistance. Accountants, lawyers and business brokers frequently
act as advisors or agents on small financings, and can facilitate the process, particularly
for managers who are new to fund-raising.
Seek advice from entrepreneurs in the community who have previously raised venture
capital. Venture capital sponsored fairs, seminars and panel discussions are
an ideal forum to gain exposure to entrepreneurs and service providers with experience
in fund-raising.
Finally, maintain a list of venture contacts and communicate regularly through quarterly
newsletters or press releases. Do not assume that your most recent venture
funding will be your last. Use frequent written communications to develop
relationships with appropriate investor candidates over time.