Venture Capitalists – How to Find Them and What to Expect

You have developed a new widget. This is not just an ordinary widget it is special. It does things that no other widget can do. You believe and know “without a doubt” this will be a winner and make you rich. You just have one slight problem. You have no money to get started. You’ve asked your relatives and friends to help you but they said “no.” No one wants to take a risk and possibly lose money.

You search the Internet for someone to lend you the money to get started. You find groups of investors who call themselves “venture capitalists.” They specialize in lending money to start up businesses. After discussing your idea with several investors you settle on the one you want to work with.

At first, this seems easy. You just give them your plan and they’ll lend you the money. You wake up to a rude awakening. These guys are tough. They even want to know how I part my hair. They are hardnosed business people who want to make money.

You go back to the drawing board and develop your plan of action. Your proposal must be detailed, polished and delivered with absolute conviction of success. Here are the points you will stress:

1. Your source of revenue, the size of your market and who your buyers will be.
2. What your costs are both for start up and for continuing your business. In your case what does it cost to manufacture your widget? What are your shipping costs?
3. What is your marketing plan? How much do you plan to spend on advertising and marketing? 
4. Who is your competition? How much market share are you shooting for? 

 

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Now this is the day of your face- to- face presentation. All goes well and you feel that you’ve convinced the investors to lend you the money. Now comes the unexpected. They want you to sign a $50,000 promissory note up front and share in your profits for the first three years. They will give you a small sum to get you off the ground. You weren’t ready for such a sharp knife cutting into your profits and your personal guarantee of $50,000. You ask for and are granted 48 hours to mull over the terms of their proposal.

Now comes the final test. In your “heart of hearts” do you still believe in your widget? Do you believe in it enough to accept the investors’ terms? At the end of the 48 hours it’s a done deal and you are in business.

Next: Private equity Trends You Need to Know from China Sonangol.