Getting the attention and investments of the venture capital community is still very much an active pursuit for many promising technology companies. While there's certainly no shortage of ideas or entrepreneurs, there is a limited amount of venture capital funds that will be invested in the promise of the next big thing. Given today's economic uncertainty, the bar has never been higher. Knowledge Center contributor Jeff Papows explains how your business can get venture capital funding even if it's not a Web 2.0 company or cloud-centric business.
today's rough economic climate, venture capital funds have not
disappeared. In fact, many high-net worth investors have recently
redirected funds into the VC community as a relative safe haven versus
the unidirectional rollercoaster ride the stock market has represented
As expected, the biggest difference today is that the investments
are under greater scrutiny. Yet, when you read the more recent
headlines, it initially appears that the majority of funding is going
toward Web 2.0 companies or cloud-centric businesses. However, after
careful examination, you'll see that the types of companies that are
getting funding today share four common attributes, regardless of their
So, if your company is not Web 2.0, cloud-centric or otherwise
deemed hip and cool, there is still funding available, provided you
meet the following four criteria:
1. Intellectual property
While great ideas abound, validating the authenticity of your
intellectual property and articulating it in business terms is crucial.
One of the primary thoughts going through a VC's mind during a
presentation is whether there's enough there, and if the team can
actually make it work.
The one simple question that needs to be answered is, "Am I building
a product or service for a market that is currently underserved and
undervalued, yet will be in demand within the next three to five years?"
2. Market segmentation
While everybody likes to be seen at a crowded party, when it comes
to getting funding, it's important that your business is in a market
that's not too fragmented, as that leads to higher sales, general and
administrative (SG&A) costs and a deflated overall value.
For example, consider the amount of social networks that have sprung
up of late, with three dominant players still owning a lion's share of
the market, leaving little room for newer entrants. The key is to offer
a differentiated, yet complementary product or service that can easily
fit into a larger portfolio, while addressing a critical business need.
3. Strength of the team
The experience of the team is becoming increasingly more important
when it comes to funding. While a wunderkind makes for great headlines,
a company with the greatest potential has a balanced team that includes
seasoned veterans with experience in larger technology companies as
well as startups.
4. Strength of the business model
While great ideas, differentiated products and experienced teams can
lead to funding, the fourth and final element that can make or break a
company is its business model. Essentially, before a company can be
funded, VCs want to know if the founders have a well-thought-out,
realistic and predictable way to forecast revenue, as well as a way to
build and execute a strategy around it.
With this in mind, consider whether revenue will be generated on a
subscription or maintenance basis, for example, or if it will require a
six to nine-month sales cycle. As any enterprise software sales rep can
tell you, it's far easier to make quota when you have a recurring
revenue stream from an existing client base, as opposed to elephant
hunting at the end of the quarter.
Additionally, be clear about your exit strategy. Since initial
public offerings (IPOs) are fewer and farther between, especially in
the tech sector, VCs need to know how and approximately when their
investments will pay off in terms of a liquidity event.