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How to attract venture capital to your startup

Tech startups and venture capitalists are inextricably linked. Industry giants like Facebook, Twitter, or pretty much any other now-giant tech company you can think of probably never would have been able to get off the ground without first securing venture capital support.

Venture capital firms provide the financial fuel that powers up-and-coming technology companies. However, finding and obtaining venture capital can be a daunting pursuit, especially for novice entrepreneurs. Where do you start? How do you start?

Will Lin, managing director of cybersecurity-focused venture capital firm Forgepoint Capital, recommends patience. “While entrepreneurs may have a timeline in mind to achieve a funding goal, fundraising is a people-driven process in which relationships can take time to develop,” he explains. Venture capital firms need to make quick decisions, but only after conducting extensive research. “To do that, we rely on both our own expertise and the expertise and connections of key people in our networks,” Lin says.

As in most business activities, relationships play an important role in the field of venture capital. “Raising funds for your startup is about building trust with investors who invest in companies like yours, at the stage you’ve reached, while working to solve the problems that matter to them,” says Rob Lalka, CEO of the Albert Lepage Center for Entrepreneurship and Innovation at the AB Freeman School of Business at Tulane University. “In the same way that you need to find a product market that fits your customers, you’ll need to do your homework to find out which early-stage investors are looking for companies like yours.”

Investing is like a marriage: Both parties come to the relationship with their own knowledge and experience and will be long-term partners, says Lin. “A first meeting is like a first date: It’s an opportunity to assess the fit.”

First steps to file an appeal

A solid business plan is essential to attract potential venture capital investors. “This document should outline your business goals, how you intend to achieve them, and why you think your team is right for the job,” says Oran Yehiel, founder of StartupGeek, a website that offers advice and support for budding entrepreneurs.

The business plan should also include financial projections that show potential investors how your company intends to grow and generate income. “If you don’t have a solid business plan, it’s going to be very difficult to convince investors to give your startup the funding it needs,” Yehiel says.

Entrepreneurs often take a “spray and pray” approach to finding a venture capital partner. “In other words, they send their fundraiser [proposal] to all the investors they can reach, through email lists they create or buy,” says Lalka. “When shooting in the dark, you might get lucky, but the best entrepreneurs don’t just rely on luck to determine their success.”

A more professional and successful approach is to produce a well-researched, compelling, and personalized speech. “That always gets better results than emailing investors,” says Lalka. In essence, the document should help the venture capital firm understand why they should be interested in your business. If the organization responds positively, follow up the speech with your business plan.

Common startup mistakes

The most common mistake startup founders make is not doing their homework. “Before approaching potential investors, it’s important to research the companies you’re interested in working with and make sure your company is a good fit for your investment portfolio,” Yehiel says. “You also need to be prepared to answer any questions they may have about your business model, your competitors, and your future plans.”

Another potential pitfall is excessive reliance on external financing. “It’s important to remember to only raise as much money as you need to get your business off the ground, and always have a plan B in case your fundraising efforts fail,” advises Yehiel.

Building trust takes time. Trust is also a two-way street. “Entrepreneurs often set themselves up for failure when they rush to raise money and don’t realize they’re marrying that new long-term investor,” Lalka warns.

Support resources for entrepreneurs

Lalka advises new entrepreneurs to research their local entrepreneurial ecosystem and seek out entrepreneur support organizations within their community. “That’s where he can meet mentors, advisors and investors who will give him honest feedback at the beginning of his journey,” she says.

On a broader scale, Yehiel recommends contacting the US Small Business Administration (SBA). which offers free advice and training to leaders of emerging companies. You can also check websites like TechCrunch either tone bookthat offer specific advice and resources for startup founders,” he adds.

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