A venture capitalist is a person, or even an organization, that invests money in a business in exchange for a share of the company. Most of you have probably seen the show Shark Tank, where people from all over present their business or idea to the Sharks in hopes that one will invest some money into their business, either to get the business started or to help it expand. In exchange for a monetary investment, and often their connections and knowledge in the industry, the investor will want a percentage of ownership in the business. The Sharks on Shark Tank are not the only venture capitalists out there, there are plenty others looking for a great business or idea to invest their money in. Here are five ways to attract a venture capitalist:
Having a solid plan is crucial to attracting a venture capitalist. Plan, in detail, how you will operate the business, how you will distribute your product or service, how you will manage your finances, and so on. If you already have an established business, even if it seems to be running smoothly, make sure you can clearly articulate how your business operates and your plan for the business, now and in the future, to a potential venture capitalist.
Make sure all of your employees have defined roles and execute them seamlessly. Nothing will turn away a venture capital faster than a weak team. Your employees, believe it or not, define your business. Many new business owners cannot afford to pay employees and, therefore, family is often tasked with running the business. However, if cousin Johnny is in charge of your finances and aunt Rita runs human resources because those two happened to need something to do over summer break and you couldn’t afford to pay staff, you may want to reconsider your business structure before reaching out to a venture capitalist.
You may have just invented the best product since the light bulb, but if there isn’t a market for the product, it will never sell. When a venture capitalist is deciding whether or not to invest in a business, he will undeniably look to see is there is a market for the product or service you are offering. Understandably, no one will want to invest in a business without knowing there will be a return and one way to ensure that is to have a market for the product or service.
This is one of those tips that seems obvious, but many business owners, surprisingly, do not make sure that they can take their product or service to the market and actually make a profit. You can have a product that people absolutely need, but if they cannot afford it, they will not purchase it. Alternatively, you could be looking to enter a market that will cost entirely too much money to break into because there are already too many big players that hold a large majority of that market. Be realistic about the market you are trying to carve a portion out of. A venture capitalist looking at your business will likely know the market and will know if it’s realistic to make a profit in said market.
It’s great to have an amazing product, with a great plan, a stellar team, excellent profit margins, and in a market you will thrive in. However, a venture capitalist will also want to see that you will be able to let people know your product is out there. Just saying “we will use the internet to tell everyone about our product!” will never attract a venture capitalist. Sit down and formulate a concrete plan for getting your product into the hands of consumers.
There are many ways to attract a venture capitalist, but once you have one interested in your business, you do not want to lose him or her because you were not prepared. By creating a plan for your business, ensuring you have a cohesive team, understanding your market, making a profit and getting your product or service into the market, you will have a business that is one step closer to snagging a venture capitalist. Who knows, you may even end up on Shark Tank!