When starting a new small business, the entrepreneur will often look to venture capital as a source of funding. Here are 3 tips to ensure venture capital financing can be secured when submitting your business plan:
- Send your business plan to the right people
- Make sure your business has the potential to be profitable enough
- Remember to include an exit strategy for your investor
Venture capitalists tend to specialize in certain types of businesses. Some will specialize by industry, investing only in energy startups, for example, while others are looking for a certain size of company to invest in. It’s worth doing your research to determine who the venture capital backers are for your industry, before you begin. submitting your business plan. Venture capitalists who are not specific to your industry can provide recommendations to make your plan more attractive to other venture capitalists. However, it would naturally be a mistake to send your plan to potential investors who will not even consider it.
Most venture capitalists look for a return of about 5 to 10 times their initial investment. For example, an investment in a company of $ 2 million should produce a return of $ 14-20 million after about five years. To meet these requirements, it is generally necessary to have a business that has the potential to earn a high rate of return on the amount invested. If the rate of return can reasonably be expected to be lower, as in the case of a clothing retailer, then it is probably best to seek an alternative source of financing, such as an investment or commercial bank.
Venture capitalists generally don’t want to be involved in a new company for an indefinite period of time. Most will plan to leave the new company after about five years, so you should offer a clear explanation of how this can be done. There can be a variety of reasons for this; Some venture capital managers require that units be sold periodically to acquire other offerings. However, by showing that you understand the limited time frame of many venture capitalists, you automatically make your plan more attractive than those who don’t.
In short, by sending your business plan to the right people, recognizing what rate of return is necessary for venture capitalist engagement, and including an exit strategy, you can improve your odds of obtaining venture capital funding for a business. new and growing business.