Help Your Client
Find the Right Partner
The Dos
 Research the VC’s history. Venture
capitalists are as distinctive as the entrepreneurs that
approach them. The best VCs are long-term investors, not day
traders, and bring significant value to the businesses they
fund.
Understand the venture capitalist’s niche.
Is the VC active in your client’s industry? Different
firms focus on different industries in order to optimize the
strengths they bring to the relationship. Also, some venture
capitalists focus on different stages of business
development.
Determine whether the investment fits in
the VC’s portfolio. What other companies has it
funded? Is your client’s business idea complementary to
other investments the VC firm has made? Or does it compete?
Make sure your client has a
well-thought-out business plan. This will be the
first impression an investor has of the new venture. Make
sure the plan is complete—not a “work in progress.”
Get someone to provide a referral. A
third-party recommendation to the VC is the best way to get
your client’s business plan to the top of the “stack.”
Competition for attention is fierce—entrepreneurs should
realize top VCs receive dozens of business plans each week.
The Don’ts
Don’t include a nondisclosure agreement
(NDA). VCs frequently receive several plans with
similar ideas, and insisting on an NDA is a sure-fire way to
insure your plan will not be read. VCs can’t negotiate an
NDA with each entrepreneur, and they don’t want to get
dragged into court if they fund one of 10 companies that
submitted a similar plan. Send only less confidential
information or send the plan only to top-notch firms.
Avoid Spam e-mail. Business plans
spewed to multiple firms by e-mail likely will end up in
someone’s “deleted items” box.
Timing is important. Remember that
business ideas run hot and cold. Do you think you can get
funding for an online bookstore now?
Make Sure the Business Plan
Demonstrates
Credibility
The Dos
Have realistic financial projections.
Nothing hurts credibility more than projections that
show your client’s revenues will exceed Microsoft’s in three
years.
Spend time on the marketing plan.
It’s an important but often ignored part of the
business plan. Market the company’s leadership in the
industry and what your client will do to stay on top. Use
the plan to demonstrate the client’s understanding of buying
patterns as well as his or her strong grasp of both direct
and indirect competition.
Show long-term plans—not just the first
product. VC firms invest in a business, not a
product.
Be aware of the venture capitalist’s
expectations in the deal. The VC often requires a
seat on the board of directors with veto power over major
transactions. VCs typically receive preferred stock with
dividend and liquidation preferences over the common stock
held by the business founders.
The Don’ts
Don’t overemphasize the technology.
Entrepreneurs often think their technology is so unique
a marketing strategy is not needed. This leaves the business
plan with a significant element missing.
Don’t forget that venture capital is
expensive. Venture capital is a costly source of
funding designed for risky investments. Venture capitalists
generally target a 60–80% annual rate of return on their
investments, in part to make up for high failure rates.
Don’t forget that VCs require a built-in
exit or liquidation strategy. If no IPO or sale of
the company is completed within a certain time frame, they
may require that its stock be repurchased by the company.
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