Introduction

So you have an idea that that you think is worth taking further and you now require additional funding from venture capital sources to help you achieve this aim? One of the most daunting tasks facing the entrepreneur is standing up in front of a venture capitalist and making them believe in your idea.

There is no doubt that convincing the Venture Capitalist takes a lot of work, but here we try and prepare you for what to expect. Remember that venture capital companies, and to a lesser extent experienced business angel investors (see About Business Angels for a description of angel investors) may see hundreds of business plans pass across their desk in any one year and may invest in less than one percent of those. These people know what they are looking for and it is up to you to meet their requirements.

This funding process can take time, anything from a couple of months to a nearly a year. It is also going to be unlikely that the first pitch that you make is going to lead to you realize all your funding requirements. Do not let this get you down, however, as perseverance may find you that elusive pot of gold.

Who are you going to pitch to?

I am assuming here that you already have your fundraising business plan polished up. Remember though, that a business plan developed as an internal strategy document is not necessarily going to be suitable for investors. There is little point in sending your business plan off to a venture capital firm who does not undertake the type of investment you are looking for.

Therefore, as with any sales process, research is the key. Most VCs are going to have web sites that will be able to assist you in identifying their preferred investment goals; sectors; geographical range; average investment amount; other relevant factors (see UK Business Angels for a list of business angel links).

The capital requirement will, largely, determine if angel investors or venture capitalists are going to be your primary source of funding. Within the U.K, most venture capital companies will only look at companies requiring more than a £1.0m external capital. Below this level, the business angel network is probably going to be the more fruitful source.

This difference still exists with the development stage of the company. Even with all the current interest in internet ventures, venture capitalists generally prefer to look at established businesses, as their risk profile is typically lower. Although some will consider start-ups (particularly in high-technology markets) this area is often dominated by business angels in the U.K.

If you want to set up a mail order enterprise, there is little point in sending your business plan to a venture capitalist or business angel who is targeting the pharmaceutical sector. Do, however, contact some of your long list to ensure that your idea is in a market that they are interested in. Even if it does not interest them, remember that this market is still concentrated in the hands of relatively few players, so they may be able to put you in contact with someone who can help.

Making that First Pitch

The hope is that after reading your business plan, some potential investors will ask you to come and present on your idea. However, a word of warning; they do not only want to receive more details of your venture. This is also an opportunity for them to assess your own individual characteristics and experience. This assessment will not only be done in this first pitch, but throughout the fundraising process.

Remember that you may not have a lot of time to make this pitch. One of the shorter ones is the 'elevator pitch' (based on the fantasy or fear of all would be entrepreneurs that they find themselves in a lift with a responsive venture capitalist) held at the Red Herring and Arthur Andersen sponsored entrepreneur/investor seminars in the United States. You have exactly 60 seconds to make your case with no notes, charts or props of any kind allowed! In reality, you are probably going to be given slightly longer to make your first pitch but being able to summarise your idea in a clear and concise format is a useful trick to have, even it is just used at the end of a VC pitch.

One of the best ways of approaching the pitch is trying to put yourself into the shoes of the Venture Capitalist (pretend it is the money in your bank account that is being invested) and preempt some of the likely questions. Some of these could include; Are the numbers properly presented? Is the deal likely to make give a healthy return? What experience does the management have? How market orientated is the concept? What is the exit route and timescale? Although these may have been covered in your business plan, here is the chance for you to summarise these key elements and inject excitement and enthusiasm that can be difficult to get across in a written presentation.

As far as the format of the presentation goes, this will vary between venture capitalist so always try to get as much information up front as to what is required. Realistically you should be looking to make a presentation via overheads or on-screen presentations, as flip charts tend to not have the same visual impact and look amateurish. Generally however, investors are not looking to be blinded with science. If you can get your message across with bullet points and some effective diagrams, then that is all that should be needed.

Further Down the Fundraising Funnel

If your initial pitch is successful, then you will receive requests for further information and meetings, although the exact format of these will vary between investors. If you are not successful, then do not pass on the opportunity to learn from the experience. What issues were raised? Did the investor have any particular reason for not wanting to invest? Through constantly honing your presentation you may reap rewards in the long run.

When pursuing this further fundraising process, however, do not neglect all other considerations in the pursuit for cash. Be sure that you are asking questions as well, such as, do these prospective investors really have the capital behind them to fund my business? Are they really interested? What experience do they have in my type of business? How much involvement in the day-to-day running do they want to have?

At this stage of the process, you must find yourself a lawyer and/or accountant (although ideally these should already be in place). Prior to closing the investment, there are term sheets (as the name implies, the terms under which an investment is made) and due diligence to be performed. Most investors will wish for a due diligence process as this helps minimize the risk they are taking on in a marginal enterprise. The details behind this process, along with a due diligence checklist will be published on this site later this year (see www.avonmoredevelopments/future.html).

Fundraising, the ultimate sell

In order to raise the funds necessary for your business, then you may need to sell an unproven idea to a very experienced audience, and this is never easy. However, this art of persuasion is a skill that many entrepreneurs are going to require if they are to run a successful business in the future. Stay focused, have confidence in your abilities, and good luck!

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