Whoever crooned, “It’s a dog-eat-dog world, and that ain’t no lie” … ain’t lyin’.
And the biggest dogs on the business block are venture capitalists. They’re the firms with the money you may need to get your product or service off the ground. They’ve got a devout capitalist’s money savvy and a skeptic’s streak as deep as their pockets, because their money has only one raison d’etre: to produce more money. Lots more money. Quickly.
Before you go to venture capitalists for cash with your can’t-miss proposition, look at your business plan through the same, painfully critical eyes in which your business venture will be reflected during your pitch.
You will become, quite frankly, a consumable. Forget the passion, forget the good-for-the-world approach. Instead, see your plan cynically, with all its warts, as the venture capitalists surely will. They will want to know:
1. Have you analyzed your market?
Is there a market for your product? How big is it? Where is it? How do you propose to reach it, specifically — who, what, when, where and how much?
Prove that this market will buy your product. Who’s the competition? How strong and entrenched is it? What are your competitive advantages? Define your particular place and market position. In short, what have you got that the other guy doesn’t have that you can prove the market wants to buy and will pay for?
Be prepared to produce quantitative market surveys to back up your claims. Don’t fail to have specific, detailed information — in your buyers’ own words — about exactly who comprises your markets, their demographics and psychographics.
2. Have you nailed down your financial outlook?
Don’t be shocked when you’re asked if you’re willing to give up your pride-and-joy in exchange for venture capital. Your ownership, your business, your ideas — that’s your collateral. Be sure you understand and can bear the burden of the venture capital debt before you even make your appeal. Be very clear about how you plan to pay the venture capitalists back … with interest … on time.
Can you articulate why you need venture capital, how much and how exactly you’ll use it? Do you have detailed budgets, expense estimates, pricing strategies?
Produce at least three years’ worth of balance sheets, pro formas, P & Ls and be able to explain any — even minor — inconsistencies. Are your financials organized, accurate and complete? Don’t EVER brush off a fudge by blaming it on your accountant, bookkeeper or CPA.
Do your financials dovetail seamlessly with your market strategies and business plan? They’d better!
3. What’s your production-to-market timetable?
If your product isn’t yet ready, what’s your detailed plan to bring it to market? By when? Have a specific, detailed timeline that you can prove is feasible and that’s meaningful to the venture capital loan.
If you’re producing a product, what’s the production plan? Be specific, from concept to completion. What will you need, where is it now, how will you obtain it and by when?
What are your production numbers and do they work with your business plan and market strategies? Most importantly to your venture capitalist audience, do your production numbers work to repay your venture capital debt and give your lenders a comfy cushion of profit?
4. How will you get your product to the market?
What distribution channels have you commandeered? Who, exactly, by name, rank and serial number, will be selling your product into which markets? Why? How will these sellers be paid? How much? How often?
Is there a training program in place or is one needed? Do your sales units know who they’re trying to reach and how they’ll do it? How close, in geography as well as psyche, are these distributors to the markets you want to reach? Are the customer contacts in place or will they have to be constructed from the ground up?
5. Who the heck are you and why should anyone give you money?
Those white teeth and that winning smile may get you into the venture capitalists’ offices, but be prepared to defend yourself and your abilities to the extreme.
Who are you? What’s your background and experience? What’s your financial history? Explain and prove your own financial and time commitments to the venture.
Who else is on your management team? Why? Who are they and why did you select them to partner with you?
Be prepared to produce organizational charts, resumes, personnel lists and pay histories. Conventional and unconventional funding sources should be disclosed and explained.
6. What’s your marketing plan to ensure your business stays in business?
You’ll already have delved deeply into the marketplace with your market surveys, true. But what’s your plan to keep these customers coming back for more? How will you constantly adapt, expand and reach out to take advantage of emerging markets and guard against market saturation?
Be prepared to produce a detailed plan that includes marketing, research, public relations, promotion and pricing. If you’ve got a working marketing plan, include it with your loan request. If you don’t have one, get one!
In short, your entire foray into the world of venture capitalism should be designed to capture the positive interest of the potential lenders and to portray you and your venture as positively honestly as possible.
If you’ve done your homework, crossed your T’s and dotted your I’s, completely and carefully proofed your plans and practiced, practiced, practiced … the venture capitalists still may turn you down. But with your thorough and thoughtful planning, you’ll be unquestionably miles and miles ahead of the game as you move on to your next potential conquest.