how to raise venture capital

Creative Commons image. Commercial use license. Photo by Timitrius on Flickr

You are an entrepreneur with big ideas about your business, but you need capital. While working to raise funding, always pay attention to the investor’s perspective. Ask yourself: “will investors look at your company as a vehicle to make their targeted return on investment (ROI)?

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Here are some important factors to consider. Investors need to believe there is a high probability that further funding will be at a higher price per share than what they initially paid, and that the current valuation is realistic. This is significant so as to increase the chances of a higher multiple (return multiplier) being later made on their initial investment.  Finally, investors want to be sure that the exit possibilities or liquidity event is plausible and sensible, should the company be successful in executing its plans. This is when they will get their money back out of the investment in your company.

How to Show ROI to Investors for Your Company

Pay special attention to these key drivers of ROI:

• large promising market opportunity (e.g., scalable business in a market over a billion dollars)
• capable and experienced management team (e.g., domain expertise and experience)
• a differentiated product offering (e.g., IP)  and
• risk mitigation plans (e.g., market validation) in creating value

A recent New Ventures BC seminar focused on getting funding also had some excellent advice for entrepreneurs getting their feet wet in the fundraising process. Some highlights from this live-blogged presentation of Tanner Philp of Lions Capital on how to approach financing:

For the people who have a sales and marketing background, it is the same kind of blocking and tackling process for getting investors. You need to have a strategy for funding your company and for what objective you are funding.

A lot of entrepreneurs don’t think about the financing strategy when they’re just starting out, but it needs to be considered before a launch.

How long does the process take? That depends on your strategy:

You should be raising funds towards a series of milestones. The more you achieve those milestones, the easier it will be to raise further funding and take it to the next level.

People chronically underestimate the time it takes to raise the capital. In the case of a high net worth friend, you may be able to close a deal over the first bottle of wine — but in most cases, it is far more challenging. Often, starting out you can be looking at four to nine months… and closer to nine than four.

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