This is part two of a four-part series I have written on obtaining funding for a startup company.
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In my previous article, I discussed raising money from friends and family.
In this part I want to discuss obtaining funding from a venture capital firm. This can be a very difficult task as many venture capitalists place more importance on return on investment than even the banks may. I believe this may be in part because they are offering their money on their own without grants or Small Business Association backing in most cases.
From my experience with venture capital firms or even individual angel investors, they want you to sit in front of them or a board of decision-makers and present your plan. They will then ask questions about operation procedures, market research, competition and virtually all other aspect of the proposal you presented.
Just thinking about doing this can be a daunting task. The fear of doing all that work and making a venture capital presentation leads many new business owners to overlook this option as a viable funding tool. I warn against this.
When I opened my first company I set out to present my idea to two separate venture capitalists.
One was a group of three investors and developers who pooled their liquid funding to invest in startups.
The other was an individual looking to partner in a small business as a way of growing his interests.
The first firm was not interested in the traditional investment scenario of giving me money to operate. They, did, however own a building in the area I desired to lease and offered me a low payment and even a couple of months free to get started.
Although this didn't directly provide us with capital it did free up several thousand dollars with which we were able to purchase inventory and pay salaries for three to four months.
After talking with the other individual I made the decision that partnering with him was not for me and we went our separate ways. He did, however, introduce me to a supplier that had prices about twenty percent lower than those I had found on my own.
As a result of those two meetings with venture capitalists, I saved almost ten thousand dollars over the course of a year.
The reason for writing about these past experiences is to show that even if presenting your idea to an investor seems scary or intimidating it can pay off, and it can pay off in unexpected ways as well.
Even if you don't receive any help monetarily from the investors they may be a great contact for the future after you have proven your company and want to expand, or by networking you to someone else who can help you and your business.
In the next article in this series on raising money for startups, I will talk about borrowing money to fund a startup business.