Do you have a business idea and don’t have enough money to start it? Well, you are not the only one! …but don’t despair! Maybe after all you have what is needed to start this idea.
After “flying” as a business angel for two years now and after going through many conferences and reading many materials about venture capital and business angels, I’ll try to share with you the criteria that venture capitalists or business angels look for when deciding about whether to invest in some business idea. So before deciding whether to contact some VC or BA look at these criteria before doing further steps:
- It’s all about entrepreneur – it is very important that you are the person with a drive, looking forward and that you are being realistic about your ideas. Also, the most important thing is – you have to believe in yourself and in your idea, because if you don’t, no one will. Venture capitalists definitely won’t!
- Do you have a vision – it’s not about the vision that you have to write in your business plan vision, it’s about do you really have a vision! You will come to a situation where you have a minute or two to get the venture capitalist interested. So you have to be prepared to say something short that will take his attention to you! Venture capitalists like to call it – a glare in entrepreneurs eyes. They like to see your energy!
- Write your own business plan – writing a business plan is not something you should do by downloading a template from the Internet and filling it’s columns, although that’s better than not writing a business plan at all, but instead try to write about all the aspects of your business idea and about your future company the way you see it. It doesn’t have to consist of every single column from traditional business plan. Write what you think is important and make it interesting and sound. That way you will be able to show your original ideas in details to venture capitalist and also you will have your ideas on the paper and it will be great to revise them through the time as your business develops.
- Focus on growing market – when looking for an idea to invest in, venture capitalists look for an idea that has fast return of investment. It is mostly possible only if your idea is focusing on a growing market, so if you want to start a business in agriculture industry, don’t expect venture capitalist to invest in your business idea or at least the investment is less possible to happen. You should probably turn your attention to bank loans and such funding. But if your idea is focused on markets like media, software, biotechnology, pharmaceuticals, VoIP, e-commerce, video games, etc., you have a possibility to get some capital from VCs.
- Scalable business – most VCs like business ideas that can scale during the time. It means that if your idea becomes successful, your expenses will remain the same, while your revenues accrue. For example, if you intend to run a hotel business, you will have to employ more work force if you intend to open another hotel. So your expenses will accrue as you try to raise your revenues by opening another hotel. So that’s not scalable. But if your business is focused on developing some kind of software platform, you could sell that platform to more and more clients by not raising your expenses. So that’s scalable and VCs love that kind of investments!
- FFF – the final point, but not the least important is connected to the first point …you should be able to at least start your idea. For example, a prototype of a product or basic functionality of some IT service should be created to have something to show to those you need money from. FFF stands for family, friends and fools …and if you don’t have enough of your money, you should be able to get some from FFF – if you are not able to collect some cash fro them and to make them trust in you, don’t expect someone who doesn’t know you in person to give you capital.
After reading this short post, and you still think you have a chance of getting some money from VCs, I recommend you to read a book The Masters of Private Equity and Venture Capital written by Robert A. Finkel. It will help you to get into idea of venture capital more before deciding to create that special “business family” with VC.