Understanding the Venture Capital Investor

By Gerard Brandon

Promoting your Business to Venture Capital Investors is an attractive proposition. The investments are larger than you would get from friends, family and Angel Investors, and often they are more willing to invest in subsequent fund raising rounds.

But Venture Capital investors are not always the easiest to get. If you don't grasp the realities of the Venture Capital environment, you may sabotage even an interested potential investor. Here are five important keys to working with Venture Capital investor.

Venture Capital Investors are busy. This is just as true in economic downturns as during a boom. When business is slow, business plans and propositions still come pouring in through the post.

Busy people ignore unsolicited email and letters, and will not return your phone calls. Even when you are in the final stages of closing a deal, your contact may not return your calls for weeks.

If you accept this as normal behavior instead of obsessing about how you may have caused it, you will sleep better at night and use your daylight hours more productively.

Hot buttons open doors. If you want to capture the interest of a busy person, you need to tell them exactly how you can help them. Calling just to introduce yourself will not get their attention.

What do the people in your target market perceive to be the greatest problems they face, or the biggest goals they wish to achieve? Ask these questions of the people you serve and the other business people who serve them.

Read trade literature or special interest publications and educate yourself on the key issues in your marketplace.

Then tell your investors in every communication how your idea or business can help address these needs.

Every choice must be justified. When you raise money from a family member, friend or an Angel Investor they are free to make investment decisions based on instinct, whim, or gut feeling. But every Venture Capital investment must be justified to someone else in the organisation.

A junior associate within the Venture Capital firm must justify choices to a manager,
The manager to an executive,
The executive to the CEO or Senior Partner, The CEO/Senior Partner to the Investment/Credit Committee,
The Investment Committee or Board of Directors ultimately to the shareholders.

Each one of these people wants to look good to the next link up the chain, and dreads making a public mistake. If you want your investment to be concluded, you need to provide your contact with EVIDENCE why you and your business solution are the best choice for investment.

The bottom line rules. When you provide your evidence, it had better include euro/dollars and cents. If you are more expensive than your competition, what added value will you provide? What unique tangible benefits will they receive that make the added investent worthwhile?

Friends, family and Angel Investors invest in the category of nice-to-have, often to improve their quality of life. Venture Capital organizations don't. You must convince them that your business idea is something they actually NEED and prove how it will enhance their bottom line and deliver a profitable EXIT. Real-life examples of results, proof-of-concept at least, can speak volumes. Illustrations with charts and graphs are more convincing than any brochure and understanding the Financial Calculations goes a long way to convincing your investors that they will find that EXIT.

No budget; no investment. Even when the Venture Capital firm would like to be part of what you have and thinks you're the best idea they have seen all month, the deal won't go through if there's no money in the fund. No free cash usually means your project will be deferred until the next investment fund is raised. Always ask if the Venture Capital fund has free funding at the first meeting. Don't necessarily expect them to tell you how much is available. But if your contact can't answer funding questions, it's also a strong clue you are not talking to the decision-maker.