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How To Approach A Venture Capitalist With A Start-Up Idea?

Aug 07, 2017 Posted by Anders Östlund
Before you contact any venture capitalist you need to carefully thing through if you really need an outside investor and which kind of investor you want. Are you looking for passive cash, experience, strategic partners, market access or something else? What track record does the venture capitalist have? Are they short-term investors who will pasture you for growth or are they long-term investors with real endurance in hard times? Will you get along with their management and partners?

A common problem for companies what get venture capitalist funding is that the cash received is supposed to be used to grow faster and to do so the cash burn-rate has to increase to a point were it’s near impossible to manage all activities well which in turn needs to waste and – worse – the establishment of a wasteful culture in the company where each and every issue is solved by throwing cash at it. In such a culture it can become impossible to achieve profitability and if the investors pulls out bankruptcy might be breathing down the neck of the founder shortly thereafter.

 

If you have decided to seek venture capital and decided on what type of investor you are looking for it is time to find them. Maybe you know somebody who knows somebody? Maybe you have made a long list of prospects? In whichever case you will now be put to the test and be asked to make a solid case for why they should give away their money?

 

The venture capitalist will ask you rock hard questions about the size and growth of the market you are intending to address, they will penetrate every aspect of the solution you propose for the perceived market challenge and they will grill you about how you intend to spend their cash and what for. The venture capitalists are very competent to answer these three questions themselves though; after all estimating market sizes and business ideas is what they do for a living.

Considering this it is likely that the market size, its growth and the business idea is considered to be good enough for you to even get to present your idea.

This leaves one important component for you to answer for and that is why you of all people are the one to transform this very business idea into a working, growing and eventually profitable company. What qualities and experiences do you possess that makes it worth investing in you?

There are so many business plans and so many aspiring entrepreneurs out there and the venture capitalists gets thousands of business plans on their desks so surely it’s not the ideas they are short of but entrepreneurs. Give this a thought when you write your business plan. Why you?
 

Anders Östlund

Founder of Fryday, An International Network Of Professionals

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