A venture capitalist reveals what you need to knowBy 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
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 necessary tools and educational programs to help entrepreneurs learn how to reach them.
Some advisers believe that marketing model best explains raising venture capital. This model simply applies marketing principles of 4 Ps (Product, Promotion, Place, and Price) to sale of equity. The marketing model, however, is really most useful in explaining 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 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 marketing model helps to explain how to maneuver in venture capital environment, relationship model addresses critical nuances of how to communicate with a VC. For example: How do you talk to a VC? How do you manage 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 process and how they think during its evolution.
The first step to getting inside 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 brief history of venture capital and how industry structure has evolved. Next is to learn current trends that are affecting environment for VCs and 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 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 process some refer to as "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 foundations for building a relationship and elements for a great first meeting. The onus is on 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 analytical framework for optimizing success.
