How to Win the Venture Capital Game

The competition for venture capital is fierce. The initial public offering market is down, venture capital firms are scaling back on investments, and the number of entrepreneurs seeking funding has remained the same, if not grown.

So what is an enterprising entrepreneur or small business owner to do about securing venture capital funding, either for continued growth or a ground-up startup? It may be as simple as networking, preparation, and having the answers to a few key questions.

Pitching the pitch

The first step toward getting venture capital funding is finding a firm or solo venture capitalist that will listen to a pitch.

While many firms have general inquiry email or postal addresses, most inquiries sent to this address get tossed. With an abundance of entrepreneurs and a lack of venture capital funds, VCs already have their hands full with proposals before even looking at the inquiries sent to a generic address.

In a way, securing an appointment becomes somewhat of a screening for entrepreneurs—is the person dedicated, resourceful, and bold enough to find a more effective way to communicate with the VC? If so, that is a positive indication for future startup success.

Fortunately, accomplishing this has become somewhat easier thanks to social networking websites. LinkedIn and even Facebook can be valuable tools to see if there are any mutual acquaintances with the venture capitalist, which can be used to facilitate an in-person introduction. If no mutual acquaintances exist, the websites can still be useful for doing research about the VC or firm, and to send out a more personalized message asking for the opportunity to pitch.

Preparing for the pitch

Once the opportunity to pitch a VC has been obtained, a vast amount of preparation work is necessary.

It may be helpful to research the VC firm or the individual venture capitalist, to see what kind of investments he or she has made in the past. This will give entrepreneurs a better sense of what kind of opportunities are seen as appealing, and can help guide the pitch.

Objective metrics are also a must. Entrepreneurs must have a clear sense of revenue potential, market demand, customer demographics, and a well-designed business plan. Entrepreneurs that are insecure on any of these dimensions should consider investing in financial software, to be able to provide more specific and accurate metrics about the startup's potential profitability.

If an entrepreneur is shaky on market demand or customer information, it may be worthwhile to develop, market, and perhaps even sell a product prototype. It is more difficult for venture capitalists to get behind an idea that has no concrete evidence of success in the real world, so anything that provides concrete data—sales, customer demand, feedback, et cetera—will help the entrepreneur's cause.

It is also important for entrepreneurs to have a clear sense of their assets, instead of just ideas. Will there be additional funding coming from another source? Is there—or will there be—a team of employees that is skilled enough to handle the many different challenges of starting or running a small business? Again, if entrepreneurs are having a hard time defining specific, monetary assets, financial software could be a useful investment.

Perhaps most important is having a clear sense of what the venture capital funding will be used for, if secured. Good ideas are a prerequisite, but venture capitalists want to make sure that their money will go to good use and that it will deliver returns.

Last but not least, do not forget to practice the pitch!

The big day

After all the preparation, pitching itself may even be one of the easier parts of the process.

One of the most important characteristics of a successful VC pitch is enthusiasm: for the product, the service, and the future of the company. Second only to enthusiasm is the ability to convey that feeling successfully, because if it gets lost in translation then it may as well never have existed.

Another thing to remember is that the pitch is just as much about selling the entrepreneur as it is about selling the product. The entrepreneur must appear accomplished, confident, trustworthy, ambitious, resourceful, and enterprising. A successful entrepreneurship track record goes a long way in conveying this—so do not be modest—but the presentation is the other half of the battle.

Many venture capitalists believe that demonstrations are more effective than presentations, for their ability to convey the product or service in a more concrete and engaging way. So if demonstrations are possible, they should be considered.

The buck doesn't stop there

After the pitch has been presented, the business plan and business cards have been handed out, and the handshakes are long over, there is still one more thing for an entrepreneur to do—follow up. For something that is so often-overlooked, it often makes or breaks the deal.

If this pitch fails, all is not lost—oftentimes venture capitalists will meet with an entrepreneur after they have launched the business and can demonstrate more concrete metrics.