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To Woo A Venture Capitalist

Venture Capital

Venture Capital

The most difficult part of setting up a business is getting the right amount of funding, from the right people. Most of the time, even though the ideas are excellent, entrepreneurs often find it difficult to convince VCs. One reason for this could be that in the process of developing an idea and making a plan, entrepreneurs get emotionally attached to their plan. They sometimes, even take it personally if anybody finds fault with their precious plan.

Venture capitalists look for only 2 things in a business plan – profits and sustainability. Nobody wants to fund a business that doesn’t provide the guarantee of good profits, no matter how great the idea is. Also, the business must be able to sustain itself and grow over time. Usually, even after getting sufficient funding, a business has an implementation phase, followed by a test phase, before the business goes live. In the meantime, there could be a million things that could go wrong. So a rational approach would be, before making any progress with the plan, first analyse all possible scenarios where the plan could fail, and come up with a work-around for each. Estimate the incremental costs of these situations. If you realise the existence of too many flaws, or a major irreparable flaw, then the logical thing to do would be to chuck the plan. Going ahead with such plans may have 2 disastrous results. One – You will end up making the entire plan, only for the VCs to notice the flaws, and the plan will have to be scrapped due to the lack of funding;  Two – You may get the funding, but at some point you will reach a stage when the flaws start showing up, and the plan has to be aborted anyway as you reach a stalemate.

Another problem area is imitation or copycat businesses. It’s amazing how quickly they come up, once people scent what’s going on. These copycats may be competitors from established companies, or they could be independent businesses. However, their presence definitely erodes on the expected revenues as they eat into the market share. So before approaching a VC, make sure that your plan is either so flawless that it is not easily imitable, because imitation will only create losses for those who try, or it will take a long time for competition to imitate your plan. Point out these to the VCs, and let them know exactly (or approximately) how long it may take for competitors to catch up. Also, factoring in the loss of revenues and market shares due to them could help make your plan more robust. This not only will give the VCs a clearer picture of the plan, but also will convince them of your credibility and transparency. This of course does not mean that you be overly critical of your own plan. Make your point, explain why you think the plan will work, give an estimate of the metrics, and also tell them what may go wrong and what you cannot predict.

Read the body language of the VC while you are making your presentation. If it appears like they have doubts, or have a vague expression on their faces, stop talking, and ask them what’s bothering them. Clear their doubts first, and then proceed. It will help them focus on the rest of your presentation much better. Also, if they don’t seem to buy what you are saying, or don’t seem to “fit” with you, then maybe, you should approach other VCs. Else, there is a good chance that you will end up wasting valuable time even after months full of meetings.

The most important part – which must be done even before you go for your interview is learn about the VCs, and try to understand their company’s values. You may be having a brilliant plan regarding a cutting edge technology for a mobile application, but it will be of no use trying to convince a venture capitalist firm who mainly support green energy based businesses. Like in an Indian marriage, try to match your zodiacs first, and only if there is a match, go ahead. A partnership with VCs is not unlike a marriage – it is a long term relationship that has to be built on mutual trust and values in order to achieve common goals.

About Anindita Chatterjee

Career and Education: I am currently PGDM 2nd year student (operations) from K J Somaiya Institute of Management Studies and research, Mumbai. I had a prior work experience of almost 2 years at Verizon Data Services India, Hyderabad, where I served as a server administrator. My work involved troubleshooting all kinds of OS and Hardware problems with Windows 2003 servers. My graduation consists of BE in IT from CBIT, Hyderabad. Social: Born in Mumbai to Bengali parents, raised in Hyderabad, studying now in Mumbai, I am pretty much the PAN Indian. I love making friends and meeting new people, although I wouldn’t really call myself a social butterfly. I love writing, and am a voracious reader – be it fiction or non-fiction. I think that one of the biggest comforts in life is being able to curl up on the couch with a great, exciting new book after a day’s work. I also enjoy all kinds of music, and I am a complete movie buff. I realise that there are grey areas in most issues, but I do call a spade a spade, when it’s glaringly obvious. I believe in God, but I’m not religious. I feel that it’s important to focus on the purpose rather than the medium used to achieve the purpose.

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