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Preparing For Meeting With Venture Capitalists

If your business plan submission survives the rigid initial review of most institutional venture capital firms, then the key to your first meeting and success thereafter is PREPARATION! Keep in mind the following points:
Have a dress rehearsal. You need to rehearse your presentation many times, using a “moot
court.� This involves different audiences asking different questions, replicating the actual
meeting that you’ll have with the managers of the venture capital firm. Make sure your
rehearsal audiences (such as lawyers, accountants, business school professors, and
entrepreneurs who have raised venture capital) have the background and the training to ask
the right questions (including the tough ones) and be able to critically evaluate your
responses. Do your homework on the venture capital firm and learn what their “hot
buttons� may be so that you can address key issues in your presentation. As the saying
goes, “You never get a second chance to make a first impression.� The rehearsals will help
you survive the first meeting and get to the next steps. Be prepared for the tough questions
and don't be scared, intimidated or upset when the really hard ones start flying at you. If the
venture capital firm's team doesn’t ask tough questions, then they are not "engaged" into
your presentation. If they are not engaged enough to beat you up a little, then there will
probably be no next steps and no deal.

Have a mentor. It’s always helpful to have a venture-capitalist coach or mentor who has
himself either raised venture capital or been an adviser on or negotiated venture-capital
transactions. The mentor or coach can help stay focused on the issues that are important to
the venture capitalists and not be wasting their time. The mentor can reassure you during the
difficult and time-consuming process, teach you to remain patient, optimistic and level-
headed about the risks and challenges that you face.

Have a detailed game plan - Prepare a specific presentation that isn’t too long or too short
(usually 15 minutes is about right). Don’t attempt to “read� every word of your business
plan or put every historical fact of your company on a Power Point slide. Keep it crisp and
focused and be prepared for questions and to defend your key strategic assumptions and
financial forecasts. Remember that every minute counts. Even the small talk at the beginning
of the meeting is important because the seasoned venture capitalist is sizing you up, learning
about your interests and looking for the chemistry and the glue that is key to a successful

Have your team available to meet the venture capitalist. Don’t overlook the “personal�
component of the evaluation. In many cases it can be the most important factor considered
in the final decision. The four “Cs�—camaraderie, communication, commitment and control
(over your ego)—may make or break the outcome of the meeting. Any experienced venture
capitalist will tell you that, at the end of the day, the decision depends on the strength of the people who will be there day to day to execute and manage the future of the company. The venture capitalist will look for a management team that’s educated, dedicated and experienced (and ideally has experienced some success as a team prior to this venture). The team should also be balanced, with each member's skills and talents complementing each other so that all critical areas of business management are covered—from finance to marketing and sales to technical expertise.

Have passion but not rose-colored glasses. Many entrepreneurs fail to make a good
impression in their initial meeting with the venture capitalist because they come on too strong
or not strong enough. The experienced venture capitalist wants to see that you have a
passion and commitment to your company and to the execution of the business plan.
However, he or she does not want to be oversold or have to deal with an entrepreneur who
is so enamored of an idea or plan that he or she can’t grasp its flaws or understand its risks.

Have a way to demonstrate your personal commitment to the project. All venture capitalists
will look to measure your personal sense of commitment to the business and its future.
Generally, venture capitalists won’t invest in entrepreneurs whose commitment to the
business is only part-time or where their loyalty is divided among other activities or ventures.
In addition to fidelity to the venture, the investor will look for a high energy level, a
commitment to achievement and leadership, self-confidence, and a creative approach to
problem solving. You will also have to demonstrate your personal financial commitment by
investing virtually all of your own resources into a project before you can ask others to part
with their resources. Remember, any aspect of your personal life, whether it’s good, bad or
seemingly irrelevant, may be of interest to the venture capitalist in the interview and due
diligence process. Don’t get defensive or be surprised when the range of questions are as
broad as they are deep—venture capitalists are merely trying to predict the future by
learning as much as possible about your past and current situation.

Have an open and honest exchange of information. One sure deal killer for venture-capital
firms is if you try to hide something from your past or downplay a previous business failure.
A seasoned venture capitalist can and will learn about any skeletons in your closet during
the due diligence process, and will walk away from the deal if they find something that
should have been disclosed to them at the outset. A candid, straightforward channel of
communication is critical. A previous business failure may be viewed as a sign of
experience, provided that you can demonstrate that you’ve learned from your mistakes and
figured out ways to avoid them in the future. On a related note, you must demonstrate a
certain degree of flexibility and versatility in your approach to implementing your business
plan. The venture capitalists may have suggestions on the strategic direction of the company
and will want to see that you are open-minded and receptive to their suggestions. If you’re
too rigid or too stubborn, they may view this as a sign of immaturity or that you’re a person
with whom compromise will be difficult down the road. Either one of these can be a major
deal “turn-off� and a good excuse to walk away.

Have a big market and a big upside. Make sure your Business Plan and your presentation
adequately demonstrates the size of your potential market(s) and the financial rewards and
healthy margins that strong demand will bring to the bottom line. A venture capitalist who
suspects that your product or service has a narrow market, limited demand and thin margins
will almost always walk away from the deal. If your target market is too mature with already
established competitors, then the venture capitalist may feel the opportunity is too limited
and will not produce the financial returns that they expect. They’re looking for a company
that has a sustainable competitive advantage, demonstrated by a balanced mix of
products and services that meet a new market need on both a domestic and overseas basis.
Remember that most venture capitalists want a 60% to 80% return for seed and early-stage
or post-launch deals and at least a 25% to 35% return on latter-stage and mezzanine level
investments. When the S&P 500 offers 30% returns and when the average investor can
double his or her money with investments in lower-risk companies like General Electric and
Intel, then your Business Plan and presentation had better demonstrate that the venture
capitalists’ money will be better served in your company.

Have an understanding of what really motivates the venture capitalist’s decision. David
Gladstone, a seasoned venture capitalist and author of the Venture Capital Handbook ,
writes: “I’ll back you if you have a good idea that will make money for both of us.� That
one sentence captures the essence of the venture capitalist’s decisionmaking process. You
must have a good idea—one that’s articulated in a business plan that truly expresses the
risks and opportunities and how your management team will influence the odds of success
and survival. But then, it must make money for both of you. The venture capitalist wants
deals where both the investors and the entrepreneurs can enjoy the upside and the scale is
not weighted in favor of one over the other. Finally, the I’ll back you component reminds
you that in exchange for capital and wisdom, the venture capitalists expect to have some
controls and “checks and balances� built into the structure of the deal, the governance of
the company and protection in the documents to ensure that their investment and ability to
participate in the growth and success of the company are protected.

Have an exit strategy - The saying “Begin with the end in mind,� clearly applies to venture
capital deals. Investors aren’t looking for a long-term marriage; they will be very focused on
how you intend to get their original investment and return on capital back to them within four
to six years. Your business plan and oral presentation should include an analysis and an
assessment of the likelihood of the three most common exit strategies, namely: an initial
public offering; a sale of the company; and a redemption of the venture capitalists’ shares of
the company by the company directly. Other exit strategies include restructuring the
company, licensing the company’s intellectual property, finding a replacement investor or
even liquidating the company.

Janice Buschek is a popular writer, speaker, and presenter for many business publications and seminars. Her main priority is to find ways reduce time-to-market for organizations so they can achieve better results faster. Business Templates is one of her key focus areas.

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