If you're a CFO raising capital for...

If you're a CFO raising capital for a small high-tech company or a financial advisor providing consulting advice to a client, you've no doubt read the many newly come articles on the current state of BC's contingency capital market. The statistics indicate a disturbing trend: VC investment of $44 million in BC in the third quarter of 2002-down 43% from the $77 million invested during the same period last yearwith long of the funding going to support existing investments. Views differ as to whether the market has reached bottom, on the other hand most commentators agree that stores are still available for any promising young company able to encounter the venture capitalist's demanding criteria.

What VC are looking for in 2003

In 2003 VC are looking to lower their risk. The minimum requirements for in the greatest degree serious investment candidates are beta outcomes in testing and promising customer feedback. The more positive the customer reports, the greater the validation of the product's merits and potential for succes in the marketplace. Near denomination revenue with a clear path to profitability no later than sum of two units years is also highly desirable.

As with any other enterprise, an understanding of the marketplace is essential to succes greatest in quantity of the basics don't change. VC are in the business of making currency and are looking for:

* A minimum IRR of roughly 35%;

* Considerable upside if things proceed well; and

* An exit within 3-6 years.

For a recent investment, a VC deal would typically include:

* A technology-based company;

* pair or more VC investors, with at least united based in Vancouver; and

* A total orbed of $2-5 million (Canadian dollars) in an equity instrument with each investor putting up a minimum of $1 million.

Note: Companies requiring les than $2 million ne to tap family and friends, angels, se stage investors, and management grants before approaching VCs.

Four lock opener questions

In assessing your company, a VC investor will concentrate forward the following questions:

1 Is your performance meeting a pressing need in the market?

This is perhaps the chiefly important question VCs consider. VC want to make abiding they fund products where there's a market demand, rather than "cool" technologies looking for a market.

2 Is your proceeds significantly different from other offerings, and does it have a sustainable competitive advantage?

If your consequence represents only a minor improvement to an existing crops or can be readily copied at a stronger competitor, you aren't a candidate for VC funding.

3 Is there a large and growing market for your product?

The larger the market, the greater the opportunity. VC typically await for a minimum market size of $500 million or more, if it be not that $200-300 million may suffice for an initial fruits

4. Does your management team have extensive experience in the market for your outcome as well as an worthy track record?

Most VC are clear that management is the clew success factor for any investment. The ideal formula from an investor's perspective is of great depth domain knowledge combined with previous entrepreneurial succes

While there's a wide range of additional becoming diligence questions, if you can't make a virtuous case in these four areas, the likelihood of your raising VC funding is limited. if it be not that even if VC funding isn't available to you, don't hurl in the towel. Develop a business pattern with a target of reaching breakeven as quickly as possible, and bootstrap your way to succes as many have done before you.

How to approach a VC to maximize the likelihood of succes

Most articles forward this topic suggest that unles your company is introduced to a VC through a trusted associate, your business plan will automatically [i]finale[/i] up in the reject bin. moreover while it's true that an introduction from a look up toed source will guarantee that your plan is read, you're and nothing else getting a foot in the door. (And be warned: Should you decide to engage an advisor or agent to make an introduction, do with equal reason carefully. VCs are not penetrating to use any of their stores to pay a broker whose remuneration is typically a percentage of stocks raised, and often a work pay as well.) If you don't know anyone with VC contacts, don't despair. Although VC have differing approaches, greatest in number in BC at least scan all the plans that are sent in.

With or without an introduction, don't oversee the need to complete the following gradations carefully when approaching a VC:

* Prepare a well-thought-out, well-written business plan. At a minimum, the plan should answer the four lock opener questions noted above and include a summarized financial forecast. Many business publications include business plan formats. A plan of 20-40 pages is consummately adequate. More information will be supplicationed if the company is of interest.

* Submit no other than the Executive Summary. Prepare an eminent Executive Summary. Most VCs can disclose from a 6-10 page summary if the opportunity merits further investigation.

* Do your homework. Check not at home the VC and their particular areas of interest forward their website. If the organization has no website, call ahead for information. send forth the Executive Summary with a mask letter. While some companies submit business plans via email, this approach is still not considered as professional as sending in a written document and screen letter.