This Q&A was written for and first featured in the Financial Times Business Section (16.07.11).
I am in the process of setting up an innovative tech company producing products for a niche area of the digital music industry and I am looking to attract venture capital investment in order to get the business off the ground. I am acutely aware that this is a difficult time to secure investment and wondered if there is anything I can do to make sure I make the right impression and hopefully attract investment?
From the outset you should try to ensure that your business will be attractive to a venture capital (VC) investor. Any investor needs to see the prospect of a realistic return on its investment through an eventual IPO or sale. Your business plan will need to demonstrate a thorough understanding of your chosen market and the problem you are addressing, as well as an estimate of the size of the market and the share you think you can achieve. Business ideas which are disruptive and / or scaleable are often particularly attractive to a VC.
When approaching VC’s, do your research first. They differ greatly. The technology sector is a “hot” sector at the moment and there are many VC’s active in it, but they have different investment criteria. Whilst some will consider very early-stage investments, many prefer to invest in companies with some trading history. One of the strongest cards you can play is to approach a VC at a stage when the product has launched and is starting to acquire customers. Getting to that stage under your own steam is not always easy, but many companies seek initial funding from “friends and family” or angel investors, rather than VC’s. Other options include joining an incubation or mentoring programme, of which there are a number in the UK – these programmes can help with initial funding as well as providing a source of business advice from seasoned entrepreneurs.