Investors want to put their money in companies that will succeed. To select such companies, an investor has the difficult task of predicting which companies will flourish and which will fail. Investors like to see companies with lowered risks. A business can lower the risk to success over time by developing the business strategically and creating powerful relationships with individuals and other businesses.
To make your business most attractive to investors, you must show that you've hit milestones and lowered the risks that are inherent to start-up companies. You don't need to have profits or even revenue yet. You just need to show venture capital investors that you are on your way.
Key tasks to building the business
Every business faces the risk that it will fail. Successful venture companies are founded, grown, and sold to another business, or they go public in an initial public offering (IPO). Between the day the business is founded and the day it is sold, a business faces several major risks that stand in the way of success. These risks are different for all businesses, but here are some examples:
Creating a product that is unique and that is (or will be) in high demand: A venture company must sell a product that solves a major problem for a lot of people or businesses. If your product is commonplace or needed only by a handful of people, you will have a great deal of difficulty connecting with venture capital.
Fulfilling all legal, tax, and government regulations required to sell the product: Venture capitalists are professional investors. They will not work with companies that have failed to build the business legally or without meeting all formal government requirements.
Selling the product for a profit: A popular product isn't valuable unless it can be sold for more than it costs to make. Making products profitable can be especially tricky in cases where manufacturing or materials are very expensive.
Hiring a management team that can grow the business: The team is probably the most important asset for a start-up company. A great team can change the product, redesign the marketing plan, and make new relationships with strategic partners. A great team can overcome most challenges to the business.
Finding and meeting investors
When your company is ready, you can begin to connect with investors. Venture capital investors can be hard to find. When you are ready, look for them in the following places:
Talk with your service providers. Bankers, lawyers, and accountants can often connect their clients with local venture capital firms.
Network and attend pitch events. Pitch events are formalized conferences designed to connect founders with investors.
Tap into the resources of business incubators (groups that concentrate resources in one place and often provide discounted services and free advice to young businesses) and mentors who have raised capital in the past. These groups will be able to point you to the right investors for your company. To find business incubators, go to the National Business Incubator Association at http://www.nbia.org/.
Reach out to venture capitalists through their websites. To find more about venture capitalists online, visit the National Venture Capital Association at http://www.nvca.org. Remember, venture capitalists need you just as much as you need them.