I spoke recently at the Women’s Leadership Exchange New York Conference, over at MetLife. Joining me on a panel focused on sharing strategies to help grow your business were the incomparable Vera Moore (founder of Vera Moore Cosmetics) and Sue Malone (one of the country's experts on loans to small businesses). Our moderator was award-winning small business expert and commentator, Susan Solovic.
Of course, any conversation about growing a business will generate talk on the panel and questions from the audience on the need for outside capital. That beyond a certain phase, all businesses need capital (of some form) to scale. And whenever raising money comes up, people naturally want to talk about venture capital. As the person on the panel with deep experience raising or helping others raise venture capital, I was asked to share my thoughts on when that’s the right way for business owners to go for capital. A lively discussion ensued.
One of the things that struck me that day was that, though there are more avenues for capital now than when I was raising Series A funding for iVillage as its founding coo and cfo, the idea of venture capital has kept its fascination. And many of the truths about when venture capital is right for your business and what venture capitalists focus on haven’t changed all that much since then.
Here’s how I summarized my thoughts at the WLE conference when Susan Solovic asked me to do that for a MasterCard blog post she was writing on business and capital.
Entrepreneurs often think that raising capital from venture capitalists is just like gaining access to capital from other kinds of investors. But it’s not.
The first principal of raising capital is
Different types of businesses require different types of capital.
So your most important first step is to recognize what’s the right kind of capital for your business.
As an example let’s look at raising capital from VCs. Here is what you need to know —
VCs invest in businesses with the potential for high growth and scalability.
Your business needs to be one that fits that model.
VCs focus on different types of companies. Some factors they may consider include the industry you’re in, the stage of development your company has reached, even where you’re located.
Be sure your business fits the profile that a particular VC invests in.
VCs care about Big Vision and Execution.
When you talk to a VC
- focus on the big vision you have for your company. (That means not getting mired in details.)
- be clear that you know the critical business milestones you need to achieve along the way.
VCs will invest in an A team with a B idea over a B team with an A idea. (An idea isn’t worth much if you can’t make it happen.)
Use your team to demonstrate your ability to execute your vision.
It takes at least 6-9 months to raise and close venture capital.
Make sure you allow yourself enough time to raise the money and get it into the bank.
Remember – above all, DROOMTM — Don’t Run Out of Money
Because if you’re running on fumes you won’t be able to raise the capital you need.