Securing investment is one of the key challenges that small business owners face and certainly one of the biggest frustrations. Just as you think you’re over the hurdle of building an innovative business, you hit a road block, without access to funds you are unable to grow your business into the phenomenon you know it could be. With around 300,000 new businesses launching every year in the UK alone, how do you make your company stand out to venture capitalists?
Is venture capital right for you?
It is important that you approach the growth of your company realistically, as not all businesses are suitable for VC funding. VCs look for truly game-changing ventures that show the potential to revolutionise an industry. If you see there is the potential to grow a business to be worth in excess of £100million, then VC funding is for you. But remember: very few businesses have this extraordinary potential, and there is a vast array of alternative funding routes available to suit all different types of business, including crowd-funding sites and angel investment.
Mixing in the right circles
If you end up receiving venture capital funding consider it a partnership and not simply an investment. These are people with whom you will have to work closely over a number of years, so it is vital that you do your research and establish whether you feel they will be suited to support you on your business journey.
Great entrepreneurs can attract outstanding people to join their team and support their business. This ability to convince other, credible individuals to take a risk and work with your startup will be one of the most compelling reasons investors will want to back you. If you get the team right, the money will follow, so remember that the ‘pitch’ to new board members and employees is just as important as the pitch to investors.
Venture capital pitch perfect
Once you have secured the opportunity to pitch your business to VCs, this is your time to really shine. You may know exactly why your business is outstanding, but that doesn’t mean that VCs will, and there’s no reason to suggest that your business won’t seem very similar to a myriad of other companies unless you prove what makes it exceptional.
Demonstrate to investors your knowledge of your chosen market. Show them that you are familiar with your competitors and reveal how you can stand out from them to prove that you are serious about the future of your venture. To get VCs excited about the potential of your business, come armed with details of similar businesses in your market that have exited.
Alongside knowledge of your own company, it’s important to have a clear understanding of your potential investor. Show them that you are aware of how they work and what companies they have invested in.
This will tell VCs that you have targeted them for a reason while taking the time to talk to portfolio companies will also give you the opportunity to find out how much value the investor can really add and what support you can expect going forward. When you get to the advanced negotiations, it is your time to ask the questions, so be prepared to challenge them on what they can bring to your business, beyond just the cash.
But it’s not all about facts and figures. Ultimately VCs will have to believe in you as a person, as they need to trust you to make good use of their money. Prove to them that you have a fantastic business plan, supported by key players in the field and a genuine passion for your company and you will start to see VCs paying attention.