Getting to the VCs with Money

You could research venture capital firms on the Web. Enter "venture capital" in the google.com search engine and you'll get over 122,000 websites. Do the same thing at northernlight.com and it will find 775,906 items. You'd think that these were good starting places, but they aren't.

The general rule is that unless you know "somebody," you're not going to be funded. Yes, there are exceptions and you could hit the jackpot with an exception to the rule, but rather than gambling on a jackpot, I'd suggest you play the percentages.

The percentages say that you look for money from those you know. If you don't know the right people, you need to look for an introduction from somebody who can bring your business plan to those with the money who are to find a good investment.

Somebody

The "somebody" can take many forms. It can be "somebody" with money to invest. If your best friend in high school just happens to be with a venture capital firm that happens to fund the type of deal you have, you just won the Lotto. Most of us aren't that lucky. Most of us settle for second best.

"Somebody" could be a relative, friend or business acquaintance who knows the people with the money. It could be somebody who may not know you that well. Still, any personal connection is better than mass mailing business plans to venture capital firms that you find on the Web.

"Somebody" may not have any money to invest, but just may know somebody who does. You need someone who knows the right venture capitalist (VC) and is trusted by that VC. Their personal introduction and their credibility may be the ticket you need to have your business plan carefully considered.

When you're seeking venture capital, you must look at everybody you know as an important link in your network. This is all about networking. It all about who knows who.

If you don't know the right people, expand your network. Network, network and network some more. The concept is easy, but the implementation is time consuming, frustrating, and difficult.

You can never hand out too many business cards or executive summaries, or give too many "elevator pitches." (An "elevator pitch" is a complete explanation of why your idea is incredible. What makes it an "elevator pitch" is that you give it in the time it takes the elevator door to close and reopen on your victim's floor. Practice it!)

The human element is so important here. You simply must meet people. Meet them everywhere. You never know who will be the contact that brings you to the right person.

You might want to check out http://venturea.com/clubs2.htm where you can find an apparently reasonably current list of venture capital clubs or groups. According to this website, "The concept of venture capital groups was started in 1974 by Tom Murphy in the form of the Connecticut Venture Group. In the early 1980s, the movement began to spread across the country."

These clubs can be a great place to network. Here's where you may meet the people that can help get your startup started.

Also, look to professionals (attorneys, investment bankers, accountants, etc.) who frequent your local clubs. These non-VC professionals may be able plug you into some money as well.

You're going to need an attorney and accountant anyway. You may as well choose professionals who are networked into the funding sources in your community.

A professional who is willing to stake their reputation, in this close knit community, behind your business plan may just be the type of introduction you need.

Venture capital firms are typically bombarded with more business plans than they can carefully analyze. The point of all your networking is to personalize it when somebody reads your business plan.

Whether the funding source knows you (the best alternative) or knows the person who brought the plan to them, either way you're not just another anonymous plan. The personal contact is one of the traditional keys to success.

After the Referral

You'll know that your networking is paying off when you start getting referrals to VCs. Even with a referral, you shouldn't assume that you're going to get much time to make your pitch.

Before your first phone call or meeting with the VC, check their website. Learn everything you can about them. Don't waste their time! Don't assume that your referral source referred you to the right VC. If they're the wrong VC, try to turn that VC into a referral source to another VC. Keep the network churning.

You can befriend the "wrong" VC by being on the ball and getting right to the point. In checking the website, look for answers to basic questions like what rounds and size they invest and what areas they invest. In your first conversation, ask if they're actively investing right now, would they like more information and how would they like that information. Do they prefer fax, e-mail or overnight delivery?

If it's the wrong VC, don't belabor the conversation, but do ask if they know anybody who might be interested in investing. Be quick on the uptake and you will add to your network.

Remember that everybody you know and everybody you meet is a part of your network. Cultivate all of your relationships and with a bit of luck, you'll find the right source for funding your startup.