Business Finance: Getting Venture Capital

By Barry Calvo | December 20, 2009

There are now many options of financial solutions to help support your growing business. These include: bank loans, private equity, factoring and invoice discounting, grants and venture capital investment.

Capital is generally designed and suited for high-growth companies with a solid management team in place who are the cutting edge of their field or innovating new products and services. Traditionally, as they are looking to help companies grow and succeed, technology and digitally based industries have been popular with venture capitalists but this isn’t exclusive. Obtaining venture capital offers a different solution to financial needs than say a loan, which has to be paid back (with interest) whether your business succeeds or not.

Growth and Profitability
Venture capital is invested in exchange for a stake in your (unquoted) company and, as shareholders; the investors’ returns are dependent upon the growth and profitability of your business. Generally, venture capital firms look to retain their investment in between three to seven years before achieving their principal return through an exit, but during that time, they also look to generate at least a 20% return per annum. Their exit may include selling their shares, a listing on the stock market or if the whole company is sold to another.

Before giving a business or prospective business an injection of venture capital, entrepreneurs need to assess their current situation and be able to talk about the future of their business convincingly. Managers must demonstrate an in-depth understanding of their market, their own unique position and how they plan to take market share. It’s important to keep site of the fact that investors want a profitable return for their money and will only seriously consider those opportunities that are likely to yield that.

Pitching for capital
When preparing a pitch to potential investors it takes a lot more than just a business plan to sell yourself. You should be armed with a professional presentation that you know inside out and that communicates clearly and memorably what the business does or will do.
You probably have about 30 seconds to capture their imagination (think Dragon’s Den!) and if your presentation is too complex or ambiguous you will lose them.

Ensure your unique selling points are evident and easily grasped and engaging. Be truthful, knowledgeable and transparent about figures, mistakes or worse, lies, will always be uncovered. Financial targets about your growth potential should be realistic and don’t be afraid to point out the risks as well as the benefits.

Spend a lot of time preparing your pitch and practice it many times before putting yourself in front of potential investors. It’s a good idea to seek external advice – both financial and legal beforehand to re-check figures and terms so you equipped to deal with tricky queries. Their questions should be anticipated and strong well-researched responses prepared – be open and not defensive. The top people from the management team should be involved in and present at the pitch. This is a good way for the investors to see the strength of the team and expertise behind your ideas.

Keep your presentation short but engaging, avoid jargon and remember why you are there! They want to know what’s in it for them, so try to put yourself in their shoes. Would you invest in your business?

The author used to work for a factoring company specialised in business factoring and factoring invoices.

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