After months of hard work, your new product is ready to go into production. It works wonderfully, with no glitches. The people who have tested it love it, and tell you that they will happily endorse it. There is, however, a catch. You don’t have the capital to mass-produce your product.
You approach the bank for a loan, and while they agree that your product sounds wonderful, they are not willing to invest money in it. You cannot ask for a loan from friends and family because a) they don’t have enough cash or b) they already financed your start-up and have run dry or c) the bank is right. Your venture is risky.
Before you approach a venture capital firm, it may be useful to know what they look for. Here is a list of commonly used criteria:
- Your target market used their money to buy something before you came up with your product. Do you know how your product or service compares to other custom options?
- Do you know the buying criteria of your potential customers?
- Identify five or six of your strongest competitors and compare your product with theirs.
BARRIERS TO COMPETITION
- What makes your product unique?
- Can your competitor reproduce those traits in his product?
- Do you have a strategy to prevent competitors from mimicking your success?
- Can the market be saturated with your product? If your product has a growth ceiling, do you have a plan to grow your business in another direction in order to prevent its stagnation and death?
- Is there an unending need for your product, or is your product limited to a small segment of people?
- Will geographic considerations prohibit expansion beyond a local client base? Are you looking for steady growth potential?
- Do you know the unit cost of your product?
- Do you plan to sell large volumes or your product with a smaller margin or smaller volumes with high margins?
- Does your price take into consideration adjustments in the face of unexpected competition?
- Is your market easily accessible? Do you know where to find them and how? Are you going to advertise to a mass audience with the belief that if you throw enough mud something will stick?
- Is your market actively seeking your product through clearly identifiable channels? For example, if you sell writer software, it makes sense to market your services in writing publications and web sites.
Venture capital firms invest in the entrepreneur who can demonstrate that he has a thorough understanding of the market niche, a history of similar business experience and has personally financially and psychologically invested in the company. What do you plan to do convince your white knight that you have these qualities?Venture capital