Venture Capital 101: How to Get Backing for Your Business

You’re ready to scale your company, but don’t want to assume the risk of a bank loan, or you know you won’t be able to get the credit you need that way. Could venture capital be the way to go?

If you’re open to giving equity to a backer in exchange for the funds and connections to take your business to the next level, and are seeking more than a few hundred thousand dollars, it may be worth the time and effort involved in pursuing VC financing. Here’s what you’ll need to do to catch a VC’s eye.

1)   Build a great pitch. Venture capitalists are busy people. If you want to sell them on your idea, you won’t have long to convince them: Most VC pitches take less than an hour, and some meetings last just five minutes. In the short time allotted, you’ll need to show why your team is worthy, what your product or service is, the market you’re servicing and how your product varies from others in your field, and how much money you need and how you’ll use it. Use a slide presentation to note the key points of your pitch, but don’t go overboard: 10 slides are all you need. See more tips on creating a great presentation from venture capitalist Lisa Suennen.

2)   Get an introduction. Now’s the time to work your connections. If you know a high-level lawyer or a startup CEO, press them for introductions to the venture capital firms they’ve worked with so you can request a short meeting. A warm referral will go a lot farther than a cold call.

3)   If you don’t have the contacts, submit a convincing email proposal. Many venture capital firms provide the opportunity to submit proposals through their websites. Keep it short and snappy: three to four paragraphs will do, says Guy Kawasaki, a well-known entrepreneur and venture capitalist. Kawasaki also urges companies not to include their slide show: Save that for the meeting, assuming you can get one.

4)   Get ready to improvise. So you’ve scored a meeting — congratulations! Now’s the time to customize your pitch to the VC firm you’re meeting with, and walk in with a killer presentation. But you’ll have to be ready to think on your feet: VCs are notoriously skeptical, and are likely to poke holes in your claims. Be prepared to thoroughly back up any statement you make about your company or the market you’re serving.

5)   If a VC wants to invest, read the term sheet carefully. If a VC firm is interested, you’ll likely endure months of meetings to hash out the details of your plan, and they’ll finally give you a term sheet outlining the business agreement. Even though you’re eager for the money, don’t be too quick to sign — be sure to have a legal representative look over the paperwork to ensure that the deal will be beneficial to both parties. BusinessWeek has tips on how to negotiate a term sheet.