Is Your Business a Fit for Venture Capital
You’ve started your business and things are going well, but like any good company you are still trying to grow. For some businesses, getting venture capital funding can be a good way to get investors to take your company to the next level. Nevertheless, venture capital funding is not for everybody, and there are certain things to take into consideration.
In order to be a successful candidate for venture capital funding, a company needs to be able to grow to a very large size overall from a revenue standpoint in a relatively short amount of time. Generally speaking, that means within 5-7 years. Venture capitalists want to invest in a company worth 1 billion dollars. That can mean one of a few things. First, said company is making somewhere between 50-100 million a year. It could also mean the business is growing so quickly and that they have a strategic value for somebody. Finally, it could also denote that a company is scaling at such a pace it that it can go public.
Venture capitalists are always looking for very high growth opportunities that will provide meaningful return to their investors. Therefore, they’re looking for a company with a business plan that clearly shows the ability to reach their goals in the specified time. Creating a solid business plan to show potential venture capital investors is a good way to see if you have the pieces in place to be a good fit for venture capital. If this is your first time then it may be wise to seek outside help in the form of an accountant to help you draft a strong plan.
Business Plan - Summary
A successful business plan should start out with a summary in which you convincingly lay out the key elements of your business plan in a way that endorses clear growth for your company. Following that should be a background of the company to show potential investors the journey of how it came to be and how it is representative of the type of growth you are promising. Next you should display the product or service that your company deals with and what about it is unique enough to succeed.
Business Plan - Marketing
In order to prove to potential investors that there is a real commercial opportunity, your business plan should also include a market analysis as well as a marketing plan of how you can exploit any possible opportunities in the market. Make sure to incorporate any sales and distribution strategies to prove you have a solid way of getting your product or service into the right hands.
Business Plan – Financial Projections
The key here is to make financial projections as feasible as possible. It’s fine to be optimistic, but realistic optimism is the way to go. Show any possible costs that come along with running your company as well as a projection of sales. Finally, end with a solid idea of how much finance you require to make this plan work, as well as a clear exit strategy for the investors.
At the end of the day, there are some important questions to ask yourself to decide if venture capital is right for your business.
Is this a lifestyle business, meaning a business that sustains a certain level of income to pay yourself and your employees and help you run your life? If so, then it might not be a right fit for raising venture capital.
What size revenue do I see my company growing to realistically in the next 2-4 years?
How many customers overall do I imagine myself getting?
How big of a market opportunity is this?
Does this look like similar businesses that have raised venture capital?
If you can successfully answer these questions and it seems like a good fit overall, then your business may very well be fit for venture capital.
Jason Nazar is the co-founder and CEO of Docstoc. He’s a frequent author and speaker on small businesses topics. You can read more of his posts here on Docstoc and at his blogJasonnazar.com.