How To Attract Venture Capital In 5 Smart Steps

Venture capital funding is an elusive beast. So, here's a look at 5 sure-fire ways to prime the pump and attract VC funding.

Photo: Dave Blakey, founder and CEO of Snapt; Source: Courtesy Photo
Photo: Dave Blakey, founder and CEO of Snapt; Source: Courtesy Photo

Throughout the world and particularly in emerging markets, the entrepreneurial landscape remains notoriously difficult to navigate. An estimated 80 percent of small businesses fail to sustain themselves for a period longer than five years.

However, with an increasing percentage of jobs now being directly attributable to small business ventures, financial backers in both private and public sectors are slowly starting to acknowledge the substantial impact of entrepreneurial activity on a nation’s economy.

Yet, despite the rising global trend toward VC backed tech startups, for example, there remains very few initiatives present in emerging markets. Can this be accredited to unsustainable entrepreneurial ecosystems, or is success simply a collective mindset shift?

 

May the odds be in your favor

A VC once told me that, out of ten investments, he expected seven to fail, two to return his investment and one to make a fortune. Those are fairly frightening odds for if you plan to invest large amounts of capital.

What’s more, bankers and financiers generally don’t fund “pie in the sky” ideas, particularly in technical and creative industries. As a result, it’s no wonder that many startups never crank up the proverbial engine. The main reason being that if an idea is capital intensive, venture capital funds are hard to come by. Some are simply too afraid to try.

But there is hope for aspiring entrepreneurs. Here’s a look at 5 sure-fire ways to prime the pump and attract VC funding.

 

1. Gain a track record and traction

Steve Jobs and Bill Gates both got their starts moonlighting as network engineers or software salesmen to build up a solid track record. Track records and traction build trust for financiers. This approach to entrepreneurship can take time but reduces the risk for the more cautious, who are able to earn an income while at the same time working to get a business off the ground.

 

2. Refine your business plan

Much of your ability to acquire financial backing will come down to the effectiveness of your business plan. Develop a practical, adaptable plan, which takes into account potential stumbling blocks and market shifts. Factor in potential challenges, such as rising interest rates, non-payment by debtors, electricity cuts, theft of delivery vehicles, declining product demand, seasonal variations in supply and demand, and so on. Ultimately, financiers will look not only at your big idea, but also your ability to sustain it.

 

3. Do your homework

More often than not, startup success is a result of diligent homework. There’s no use in launching a revolutionary product if your market simply isn’t ready for it. So do your analysis, beta test your product, see who bites, and don’t ever be afraid to put out a free tester. Once the thumbs go up and the market says “yes, please,” then you can start shipping. Simultaneously, this will make a very strong case to potential financiers, who can help you take your business to the next level.

 

How To Attract Venture Capital - YFS Magazine
Photo: Carl Heyerdahl, Unsplash/YFS Magazine

 

4. Manage your cash flow

Potential VC partners are looking for a solid sales track record. This doesn’t just mean more money; it means giving your prospective VC investors something to measure ROI against. If you can manage a solid growing flow of sales, then VCs feel a lot more secure about your ability to manage and nurture their seed capital.

Professional VC firms have a very strict litmus test on profitability. Most will not accept a loss-to-win ratio of less than 50 percent. So you really need to show them your idea has the capacity to go all the way and that you are the one to take it there.

 

5. Change your mindset

In spite of increasing opportunities, going it alone continues to be a frightening prospect, particularly in developing economies. However, armed with the correct mindset and the right amount of hard work, research and planning, there’s nothing that can stop you from turning your big idea into big business success.

 

This article has been edited.

Dave Blakey founded Snapt in 2012 and currently serves as the company’s CEO. A version of this article originally appeared here. Connect with @daveblakeyza on Twitter.

 

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