How to Raise SME Financing from Venture Capital Investors
In the world of business financing, small and medium enterprises (SME) represent a large portion of new companies either needing seed financing or other early stage financing. And though most SME businesses follow a traditional route of startup financing, such as bank loans, still many find their startup cash needs through venture capital investors.
Investment venture capital is a source of funding through firms who specialize in acquiring private equity funds from investors. SMEs with the potential for large market growth or going public with an IPO are prime candidates for receiving investment venture capital.
Though it is one of the best sources for seed and startup financing, acquiring investment venture capital, however, is not easy. Usually only 2% to 5% of all proposals are chosen as investment candidates. Is there a way for a SME business to have an advantage over other applicants?
Tips for Approaching Venture Capital Investors
One of the biggest ways to build an advantage as an investment venture capital applicant is to thoroughly read and understand each firm’s application procedures and guidelines. Too many entrepreneurs and SME business owners distribute carbon copies of their capital proposals to every venture capital investor on the list, hoping that one will “stick.” However, these applicants are usually summarily rejected because they did not follow particular application instructions.
Here are other ways that SMEs can gain advantage when approaching venture capital investors:
- Though venture capital financing is about assessing the future success of a business, crystal ball guesses and speculations have no place in a proposal. Always use accurate facts and figures, as well as solid data to back up your projections.
- Research potential venture capital investors before applying. It wastes your time and the firm’s time if you apply for SME financing for your new software business to a venture capital investment firm specializing in medical technology. Form a short list of viable firms before sending out proposals.
- The management team is the key. Venture capital investors invest in quality teams with breadth and depth of experience and expertise in management areas such as marketing, production, sales, etc. Make sure to assemble a management team who possesses the confidence and know-how in their specialty. Managers with previous startup experience are also a plus.
- Prepare a succinct presentation. When you get the chance to go before a group of venture capital investors, remember they have probably listened to hundreds of other proposals just like yours. Make yours brief, about 15 minutes, and include clear highlights of all necessary details from your business plan. Practice your presentation before doing it live.
- Be ready to answer questions. Interested venture capital investors are curious, and they are not afraid to ask the tough questions. Be prepared to provide clear answers about weaknesses, competition, sales figures, etc. Understanding your weaknesses and articulating them shows your keen business acumen, as well as the fact that you have carefully studied the industry.
A SME business with a viable product or service can get their foot in the door with investment venture capital. However, it takes grueling work to acquire the necessary research, facts, and figures needed to convince venture capital investors that the SME will experience high-growth success.