If you want to attract venture capital to your business, there are a number of things you should keep in mind. Most venture capitalists will listen to your pitch, but if you really want to grab their interest and back that up with money, follow these guidelines.
Make sure your product or service is unique and proprietary. If you are selling a product, you need to have barriers in place that preclude copying by your competition. Venture capitalists want to invest in products that are protected by registered patents. By contrast, if you have a service it should be something that is so unique that it would be difficult for competitors to copy.
- An example of this would be with a service that although would not be protected by the patent system could earn a unique trade secret and thereby be protected from competition. This would give you an advantage that you could discuss with a potential investor who would want to know how you plan to keep competitors at bay.
- Use current sales as proof of consumer demand. Whether your product is proprietary or not, venture capitalists want to see a product that is being well received by consumers. And there is no better evidence of reception by the consumer than sales figures. When a venture capitalist hears of a product that during a year has sold 20 units for $50 each, that’s a huge red flag that there simply is no market for a product. By contrast, if a product is selling well, but a business owner needs money to expand on a proven winner, he will find an investor. Remember, potential doesn’t mean S%#T!
- Be sure you tell an investor how their money will increase your sales. When you can show an investor that his money will give you the ability to increase an already proven market, you will get that venture capital faster than any other method. Business owners often get so involved in explaining the details of their product or service that they fail to focus on what a venture capitalist wants to hear most, how their money will grow via this business opportunity.
- Have an exit strategy. To earn a venture capitalist’s trust, business owners must address two factors with rigid precision. First, a venture capitalist wants to know how their money will earn a return by increasing the sales of your product, both now and in the future. Another key method that venture capitalists use to evaluate investments is to know what the owner has planned as far as the possibility of selling their company and thereby earning money from the sale as well as serving as a partner of the future owner or owners.
Whatever product or service you wish to approach a venture capitalist with, you must be prepared to show him these critical factors. Failing to do so will prevent you from getting to the next level with an investor. By contrast, addressing these issues will reward you with the funding you will need to take your business into the future.