You’ve had a brilliant idea for a start-up – great! But how are going to fund this exciting new venture? If you’ve ever flirted with the idea of launching your own business, you might have mentally glossed over the part where you actually access the finances to get said start-up off the ground. But a cash flow issue needn’t put the kibosh on your entrepreneurial dreams; if you’re unable (or unwilling) to score a bank loan, you might be lucky enough to receive venture capital (VC) funding.
Provided your business idea is a viable one, a VC manager may offer investment in return for a stake in your start-up. Here, Yasser El-Ansary, CEO of the Australian Private Equity and Venture Capital Association Limited (AVCAL), offers his advice on how to turn a meeting with a VC into a solid investment.
Create a unique product
Although every VC manager will have their own set criteria of what they’re looking to invest in, there are several common prerequisites.
“These things include: a unique product offering; a passionate and competent team with the appropriate skills; and founders that have a strong appreciation for what VC investment can bring to their business,” says Yasser. Until you’re confident that you’ve created a product that can’t easily be replicated and have assembled what you deem to be the perfect team, perhaps hold off on trying to find funding until you’re in a stronger position.
Map out a business plan
“The golden rule is to ‘prepare, prepare, prepare’ – don’t turn up without having carefully thought through your answers to the questions the VC manager will be asking you,” advises Yasser, who adds, “do your homework on the industry and its competitors, map out the business plan and have the numbers to back it up.”
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Forget about the dollars
While it might seem counter-intuitive when money is exactly what you’re looking for at this stage, it’s important to remember that an investment doesn’t always have to be of the financial variety.
“The most common mistake entrepreneurs make when it comes to seeking funding is they only think about the absolute dollar investment and focus on the short-term numbers,” says Yasser. “However, an investment from a VC fund manager also comes in the form of industry expertise, business strategy, access to networks and other skills which can have a huge impact on the success and direction of the business. Funding is a part of the process in building a sustainable business, but not the end goal.”
Have a clear objective
“Venture Capital funding can be injected at various stages of the business journey,” explains Yasser. “While it’s commonly associated with seed funding to get an idea off the ground, venture capital can also come at later stages when a business is looking to scale up the business, expand their team and take the products into new territories or markets.” Before you approach a VC firm, you need “a very clear vision for how you plan to build your business and the role VC will play in that.”
Approach the right VC firm
Reduce the opportunity for disappointment by researching your VCs before setting up a meeting. “There are various reasons for why a venture capital fund may choose not to give a business funding. They may only invest in start-up or later-stage businesses, or it may be because they don’t feel they have the expertise to give your business what it needs to succeed and grow,” explains Yasser. “My tip would be to ensure you’re approaching the right VC fund through some basic research, and do as much preparation as possible when you are in front of them. Have a look at the businesses that the VC fund has invested in previously, it will give you a good guide to what might be possible.”