Bad economy did a havoc in corporate world during the last one year. In turn, it forced companies to go either out of business or lay off people very often. As a ripple effect, venture capital for start up and midsized companies are also drying up. But, still there are handful companies who have been able to manage venture capital during this crunch period. So, what are the tricks to draw funding during the recession period? My analysis highlights the following area of focus for venture capital.
1.It is a very wise idea in having respected referral like attorney, business broker or Chartered Accountant etc to request for new venture capital. A respected referral is going to establish high credential and speeds up the response.
2.Your company management needs to spend lots of time to educate your investor about business value of your companys product and services. If you choose your venture capitalist close to your premises that will expedite initial meeting and screening.
3.You have to do a little bit of homework before you submit your plan. Firstly, whether the venture capitalist funds this kinds of product or services. If the answer is YES, you need to know further whether the fund is in line with the level of your need. You will be able to get the list of venture capital firms from the internet. Also, most of the lenders have web sites.
Jim Gauer, managing director of Palomar Ventures in Santa Monica says smart VCs will invest only in early-stage companies these days, because later-stage companies could run into troubles when no one is going to acquire them because of the economy.
4.Business diversification is a major aspect of drawing VC fund. Most of the VCs are reluctant to invest money for small or mid sized companies whose business plan is based on any single product or services. The risk is much higher in those cases compared to if you have more than one product or service that cater different industries. You can minimize your risk of loosing money that way.
5.If you have a good, sound, solidly managed company, many venture capitalists will be keen to invest at your company. Managements goals and objectives must be consistent with the investors.
6.VC firm carries out a due diligence report of the prospective company before taking any investment related decision. The objective of the process is to understand how management approaches problems, issues and decisions and identify the associated risk for future quantification.
7.VCs also look for industry segments that recorded rapid growth and good profits. Thats why the information technology and health care industries attracted over two thirds of venture capital dollars during 90s.