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VC Funding: How to Raise Capital from Venture Capitalists

Have you tried to raise capital from Venture capitalists and failed? Do you want to learn the secrets to successfully raising start up capital from VCs? Are you trying to raise money for business expansion? Are you willing to give VC funding option a trial? If your answer to any of the questions above is yes; then read on as I expose the untold secret to raising venture capital from VCs.

Raising capital is one of the major business challenges faced by entrepreneurs; especially when it comes to starting a business from scratch. It’s much easier to raise capital as an established entrepreneur than to raise capital as a first time startup entrepreneur. And of all the avenues available to raise startup capital; VC funding is probably the toughest.

Since the need for capital is a business challenge that stress entrepreneurs the most; I recently commenced a series dedicated to helping you raise seed capital for your new business startup. I recently wrote an article addressing the challenges of raising capital from family and friends.

Today; I will be tackling one of the toughest avenue for raising capital; and that avenue is “Venture Capital funding.” Entrepreneurs dread the option of raising capital from Venture capitalists because of the tough process involved. VCs as they are better known cut a tough deal. They are seasoned investors that know the intricacies of startup investing and running a business. Not all businesses qualify to pass through the scrutiny of Venture capitalists; and of the few that pass the initial test, only fewer will get the start up funds.

                Now how do you leverage the experience and resources of VCs to successfully start a business?

                How do you raise startup capital from Venture capitalists?

VCs are tough and get to see hundreds of business plans everyday. So how do you ensure your business plan gets noticed? How do you get called up to defend your business plan? How do you stand the fire of Venture capitalists? Well, you are going to find out.

Before taking your business idea or business plan to a VC; please be sure that your business idea or opportunity has strong profit potential because VCs are purely investors risking their capital for a profit. It’s also advisable that the potential or expected return on investment should be within the range of 35% – 45% per annum; depending on the terms and conditions of the VC.

                How to Raise Startup Capital from Venture Capitalists

1.            Be in the Right Mindset

If you are not in the right mindset, forget about trying to raise capital from VCs. Now why do I emphasize you be in the right mindset before trying to raise capital from Venture capitalists? I emphasize that you be in the right mindset because VCs are tough and their rules are stringent. They are professional investors who have kicked the butts of so many entrepreneurs with solid business ideas; so why the heck should they give a damn about your business proposal.

Just as I said earlier, VCs are tough. They have no time for story telling and they are very good at airing their views bluntly; which sometimes hurt the emotions of the entrepreneur seeking capital. So before trying to raise capital from VCs; you must be prepared to face rejection and expect some harsh words. You may end up been lambasted by the VCs but don’t take the rejection personal; it’s the norm in the business world. VCs just want you to feel the reality of business; they want you to develop tough skin because their harsh response to you will be nothing compared to what your potential competitors will do to your business.

2.            Are you prepared to give up control?

                “I’d rather own 10 percent of a billion dollar company than 100 percent of a million dollar company.” – J. Paul Getty

If your answer to the above question is no; then forget about raising start up capital from Venture capitalist. Venture capitalist cut a tough deal; they are private equity investors so they are definitely going to take a stake in your business. Venture capitalists usually demand a stake of 25% – 60% depending on the situation at hand or their terms and conditions. Most entrepreneurs are not comfortable giving up control or opening up the ownership structure of their company. So it’s advisable you ponder over the issue of control carefully before making up your mind on the source of capital to pursue.

3.            Build up your Credibility

Now since the odds of raising venture capital for your start up company increases when going the “VC funding” way; how do you increase your chances of getting the capital you need since VCs are tougher with their rules? The answer to that question is “credibility.”

Have you run a business in the past? What experience do you have with respect to raising capital? How do you handle your personal finances? Have you had any transaction or deal with a notable business personality before? Have you built a successful business before?

The above are real questions that VCs throw at startup entrepreneurs seeking venture capital. One of my mentors “Robert Kiyosaki” said that “the more successful you become; the easier it is to raise capital and the easier the process becomes.” I think he said the truth in its entirety.

Venture capitalists want to see a proven track record; they want to see experience and above all; they want to see credibility and competence in the entrepreneur. If you lack these characteristics as an entrepreneur; never knock on the door of VCs.

3.            Find a business mentor

                “If you want to successfully go up the mountain; ask the person who has gone it to and fro.” – Zen Master

If you want to become good at the game of raising capital from Venture capitalists; then find a business mentor that has successfully done it several times. Or better still, you can seek to be mentored by a VC. Your chosen business coach may be retired or still active in the game but either ways; you will learn tremendously and your wealth of experience will be immeasurable.

4.            Who is on your team?

                “Money always follow management.” – Anonymous

The problem with most startup entrepreneurs that fail to raise capital for their business ideas is that they are trying to raise capital as an individual. Business is a team sport; so also is investing. How can you get the attention of a VC when those competing with you for the startup capital have smart teams on their side?

Having a business team is crucial to successfully raising venture capital from VCs. Who on your team has built a company and taken it public? Who on your team is experienced in business management? Who is on your team? These are questions VCs usually ask entrepreneurs seeking capital.

Let me tell you a secret to getting the fund from Venture capitalists. VCs love name dropping; it gets them excited. They want to know who is also investing in your deal. If you have a competent management team or you secured an angel investment from a reputable investor; it will increase your chance of getting the VC funds.

A business mentor of mine once said that venture capitalists prefer an average product with an excellent business team than an excellent product with an average business team. If you should consider this statement; you will come to acknowledge that it’s the truth in its entirety.

A business team is vital to the process of raising capital for your business; in fact, it increases your chances of securing the capital. Show me an entrepreneur that raised billions of dollars in capital and I will show you an entrepreneur backed by a strong business management team. Just like said in the investment world; money always follow management.

5.            Have a Good Plan

Business plans don’t impress VCs. Do you want to know why? Business plans don’t get them excited because they come across tons of business ideas and plans everyday. It’s their business; it’s what they do to stay in the game. VCs scrutinize business plans and ideas day in day out so what makes your plan stand out?

The worst mistake you will commit is to approach a Venture capitalist with a pre-made business plan or a business plan written by a consultant. VCs are savvy in the game of startup funding so they can tell if your business plan is worth the onions in less than three minutes.  I am not saying that a business plan written by a consultant is useless; all I am saying is that you should be involved with the process of the business planning.

Never take your business plan to a VC unprepared. Make sure you know your business idea and plan like the palm of your hand. Make sure the budgets and financial issues are comprehensive and your numbers do not contradict each other. Above all; keep your business plan simple and comprehensive using more of tables, graphics and charts.

To further increase your chances of raising capital from VCs, I will suggest you give your business plan to a VC friend or a savvy investor for scrutiny because he/she might pick out some flaws and this will save your neck. I am saying this because VCs are strict with their time and sometimes, it’s difficult to get the attention of a VC twice. You just have one chance to make it or break it and if you misuse such opportunity; you may never get it again.

6.            Get Social

One of the best ways of finding a VC is by getting social. Sometimes in the business world; it’s not how much you have or what you know that matters. It’s who you know. Venture capitalists are social networkers. Are you surprised? Well, don’t be.

To schedule or pitch a VC for a chance to sell him/her on your business plan; you have to meet them where they hang out. Now where do VCs hang out? You can catch them at business parties, annual general meetings, entrepreneurial summits and conferences, etc.

Getting social will enable you meet and rub minds with other entrepreneurs who are also seeking startup capital. Getting social might even earn you a referral to a Venture capitalist. You can never tell what’s out there until you move.

7.            Have a Good Story to Tell

Do you have a good story backing your business plan and intentions? If your answer is no; then you better reconsider your approach because your proposal and request may be thrown back at you. Those experienced in the game of raising capital knows that the way you pitch angel investors is different from the way you pitch Venture capitalists.

You are trying to achieve a single aim; which is to raise capital but your approach will be different because your sources are different. VCs are more impatient than angels; they are strict with their time so don’t bore them with unnecessary story lines. Keep your message simple; yet detailed.

If the Venture capitalist you are pitching is more interested in the profit potential of the business; focus on that. If the VC is more interested in the management structure or those in the deal; provide them information on that. Above all, focus on what the Venture capitalists want to know; not what you feel they should know.

8.            Select your Targets

A good rule of thumb when raising startup capital from VCs is this; “don’t go knocking on every VC’s door with your plan.” It will just be a waste of time and effort. There are a lot of things to put into consideration before selecting potential Venture capitalists to approach.

Some VCs prefer to invest in established businesses while others prefer to invest in young startups. Some Venture capitalists prefer to invest in firms to the tune of $100million and above while others are comfortable investing $1million – $10million. Venture capitalists are also specialized; with respect to their choice industry of investment.

So before approaching a VC, make sure you understand the VC’s areas of interest. Some Venture capitalists focus on investing in technology startups; some in green companies and the rest biotech or industrial companies. It is useless approaching a technology focused VC with a music based business plan because you will never arouse the interest of such VC.

9.            Sell Yourself

The next key to successfully raising startup capital from Venture capitalists is your ability to sell yourself. Why should your VCs give you their hard earned money? How are they sure the money will be used judiciously? How can you prove your competence? You must have had a business failure in the past, why should they trust you on this one?

This is where selling yourself comes in. This is where you sell your potentials and competence to the Venture capitalists; this is where you prove that you know your onions. If you successfully carry out step one to five and you miss it here; all your effort will be in vain. You will never get the needed capital.

                Why you must Develop your Sales Skills and Learn How to Sell

Getting an opportunity to pitch a Venture capitalist is like being given a gun loaded with just a bullet. It’s either you hit or miss and most often; there’s no second chance. So you got to adequately prepare yourself. Even if it means getting some training or coaching; do it.

Warren Buffett once admitted that he took a Dale Carnegie’s public speaking course and that has helped him in his relationship with associates, employees and investors. Sometimes, your personal skills may turn out to be an edge in the process of raising capital so it’s advisable you develop it.

10.          Ask for the Money

If step one to six goes successfully; then you have to take the next action step which is asking for the money. Before asking for the money; you must be definite on your plans, you must know how much you need and the terms involved. Nothing annoys me more than an entrepreneur pitching me with his business plan and when I ask how much in capital he wants to raise; he or she becomes speechless or uncertain.

Before trying to raise startup capital; whether from a venture capitalist or angel investor, make sure you know your aim and objectives. Indecisiveness is one of the silent reasons why most start up entrepreneurs don’t get the venture capital. So when raising capital from Venture capitalists; it’s advisable you know your business plan like the palm of your hands, be precise with your numbers, sell yourself excellently and ask for the money.

As a final note, these are my ten strategic action step plan to successfully raising seed capital from Venture capitalists. Remember, the key secret to raising startup capital from any source is creativity; thorough understanding of the business fundamentals and a good presentation. Once these three keys are locked in synergy with the ten action steps listed above; you will be able to raise any amount of startup capital you need.

Going Public: Advantages and Disadvantages of Doing Business as a Public Corporation

What are the advantages and disadvantages of doing business as a public corporation? what are the pros and cons of taking a company public? Well, i suggest you read on to find out.

Of what use is this article when I have no intention of taking a company public? This might be the thought running through your mind as you glance through the headline. Well, I don’t know if taking a company public interests you but I do know that it is the dream of every successful entrepreneur to see his/her company quoted on the stock exchange.

“If you are acquired, a company validates you. If you go public, the market, the world validates you.” – Fortune Magazine

Sometime in the future, I think I am going to do a piece on how to build a successful business from scratch and take it public via an IPO. I bet it’s going to be an interesting and engaging subject. In the mean time, I want you to take a look at most of the successful entrepreneurs; take a look at the drop out billionaires of this world and you notice that 90% of these entrepreneurs have their companies listed on the stock market.

Now why do these entrepreneurs go public? What do I stand to gain from taking a company public? What are the advantages and disadvantages of doing business as a public corporation? If you desire answer to any of these questions, please read on.

In this article, I am going to explain in detail everything you need to know about taking a company public. I am going to highlight the advantages and disadvantages of doing business as a public corporation. If you are still willing to learn, then let’s get the ball rolling.

   3 Reasons why entrepreneurs take a company public

Just as I said earlier, almost all successful entrepreneurs have one or more companies listed on the stock exchange; from Bill Gates, Anita Roddick, Warren Buffett, Larry Ellison to Steve Jobs, Sam Walton, Ingvar Kamprad and Aliko Dangote; the richest black man in the world. Now why did these men and women go public? You will find the answer below.

1.            To Raise Money for Growth and Expansion

“I think you might see us growing much deeper into banking. You might see us acquiring companies in the banking area. You might see us acquiring companies in the retail area. I think you might see us acquiring companies in the telecommunications. I think you will see us getting stronger in business intelligence.” – Larry Ellison

This is probably the fundamental reason why successful entrepreneurs take a company public. If a business has grown and attained a profitable status, the business owner may take the company public to raise money for expansion into other potential markets.  Take a look at how Larry Ellison strategically expanded Oracle Corporation by means of acquisition; buying up 57 companies within five years and you will understand the power attached to going public.

“In order to grow at this pace, there’ll have to be a couple of acquisitions along the way. The tricky thing is to grow at this rate and maintain a 40 percent operating margin.” – Larry Ellison

2.            As an Exit Strategy

“Always start at the end before you begin. Professional investors always have an exit strategy before they invest. Knowing your exit strategy is an important investment fundamental.” – Rich Dad

In the world of business and investing, your exit is more important than your entry. In the business plan of every smart entrepreneur, an exit strategy is always included because they know that whatsoever has a beginning surely has an end. As an entrepreneur, once your business goal is achieve, you should know it is time to move on to bigger challenges.

“Once you have made it, you will understand that any business is limited in the challenges it offers. You will want and need other games to play, so you will look for other ventures to hold your interest.” – J. Paul Getty

Taking a company public is a smart exit strategy for successful entrepreneurs. Successful entrepreneurs know that once their goal is achieved in a business, it is time to move on. They know that the journey started years ago is almost complete and it is time to pass the baton.  So what they do is take the company public and start a new business or retire. Taking a company public gives you the option to sell your business while still maintaining control over it after the sale.

“In order to be a player on the fast track, you will need to have a plan on how to gain more and more control. On the fast track, it is control more than money that counts.” – Rich Dad

3.            To Relinquish Hold on the Company

An entrepreneur may go public to take the administrative role of the business off his neck while still maintaining passive control of the business. What I mean is this; if your business has grown big, you can go public to hands off from the day to day running of the business while still maintaining control. In essence, you have given up administrative role to assume the role of a watchdog.

Now that I have explained the reason why successful entrepreneurs take their company public; are you still interested in building a business to take public? If yes, then below are seven advantages of taking a company public.

  7 Advantages of doing business as a public corporation

Though only about 5 – 10% of all businesses started usually go public, I felt compelled to write on the process of taking a company public because you might someday decide to take your company public. Below are seven advantages of taking a company public and doing business as a public corporation.

1.            Access to unlimited funds

The first advantage of forming a public corporation is this; your company will have access to unlimited funds. This is because a public company has the ability to raise an unlimited amount of capital from small investors and big businesses.

“We have to still develop the IKEA group. We need many billions of Swiss francs to take on China or Russia.” – Ingvar Kamprad

2.            Being quoted on the stock exchange

By taking your company public, your company shares can now be traded on the floor of the stock exchange thereby giving both small and big investors access to your company.

3.            Investor’s confidence

Investors are more comfortable investing in public companies than private companies due to the professionalism of the management in public corporations, the strict rules of the regulatory bodies and the publicly published financial statements.

4.            Reduced risk

Public corporations have the right to sell shares to the public and the shareholders have limited liability. Therefore, the risk is spread over a large number of people.

5.            Fast growth pace

Taking your company public will enable you grow and expand your business with ease. Since you have access to unlimited funds, expansion will be a piece of cake.

“If GE’s strategy of investment in China is wrong, it represents a loss of a billion dollars, perhaps a couple of a billion dollars. If it’s right, it’s the future of this company for the next century.” – Jack Welch

“I think you might see us growing much deeper into banking. You might see us acquiring companies in the banking area. You might see us acquiring companies in the retail area. I think you might see us acquiring companies in the telecommunications. I think you will see us getting stronger in business intelligence.” – Larry Ellison

6.            Public companies are known for delegation of managerial functions. When you go public, you will have enough working capital to employ the best in terms of experience, professionalism and skill.

“The competition to hire the best will increase in the years ahead. Companies that give extra flexibility to their employees will have the edge in this area.” – Bill Gates

7.            Taking a company public is like selling your business without giving up control or ownership of the business. It is like giving the public a chance to buy into your business and share in the profits while still maintaining control.

In the world of business and investing, there are two sides to every deal; and professional investors and entrepreneurs know this. Whatever has a bright side equally has a corresponding dark side. Before deciding to take a company public; before deciding to do business as a public corporation; it is advisable you weigh the pros and cons.

Since I have provided you with the advantages of doing business as a public corporation, I will also share with you the disadvantages of doing business as a public corporation.  Below are seven disadvantages of taking a company public.

7 Disadvantages of Doing Business as a Public Corporation

1.            The management structure in a public corporation is usually decentralized so therefore, the managers are in most cases not the business owners. Since they are managers, they may not be motivated towards the company’s goal and vision as the entrepreneur that created the business.

“Management is doing things right, leadership is doing the right things.” – Peter F. Drucker

While the entrepreneur may be driven by the desire to fill a need and build a successful business, the managers or corporate leaders may be driven by bonuses, incentives, job titles, promotions and salary; not the entrepreneur’s vision.

2.            Taking a company public is very expensive due to legal fees, meeting up with the demand of government agencies and regulatory bodies and also the cost of undertaking an IPO (Initial Public Offer) adds to the burden. The IPO cost may run into hundreds of millions of US dollars.

3.            When you take your company public, you will have to serve three bodies. You will serve your customers, government agencies or regulatory bodies and the investors. This might be too cumbersome or stressful for some entrepreneurs to handle.

4.            Public Corporations are subjected to more legal restrictions than other type of entities.

5.            When you take a company public, your company becomes subjected to stiffer accounting rules and principles; thereby reducing your flexibility.

“Unfortunately, we are not a public company. We are a private group of companies and I can do what I want.” – Richard Branson

6.            When you form a public corporation, your business affairs and financial statements can’t be kept secret any longer. It must be published to the public at large.

7.            Public corporations are subjected to heavy corporate tax. They pay both federal and state tax. Public corporations are also subjected to double taxation. They are taxed based on their earnings and the shareholders are taxed based on their dividend.

As an individual or small business owner, you can simply find a tax calculator online and prepare your own return, but as a public corporation, you will almost certainly want to retain the services of a certified tax professional.

“A corporation’s primary goal is to make money. Government’s primary role is to take a big chunk of that money and give to others.” – Larry Ellison

As a last note, I want you to also know that public corporations face severe penalties if they go wrong or misinform the public; so professionalism and transparency are the rules of the game. Look at what happen to Oracle Corporation when they overstated their earnings in the early 90’s. Consider the case of Martha Stewart, Arthur Anderson, WorldCom and Enron; you will come to understand the harsh penalties meted out to erring public corporations.

However, if you are daring, you may still decide to take your company public; the ball rests with you the entrepreneur. Don’t shy away from undertaking the entrepreneurial process of going public because of the challenges involved. Business challenges are part of the entrepreneurial process. Just as J. Paul Getty said:

“Without the element of uncertainty, the bringing off of even, the greatest business triumph would be dull, routine and eminently unsatisfying.” – J. Paul Getty