8 Vital Steps to Prepare You for Going After Venture Capitalist Funding

Now that you know the five steps involved in the Venture Capitalist “process”, we can look more closely at each.

So let’s start at the beginning of the process…Prepare…and the steps involved:

  1. Must establish a C-Corp entity structure
  2. Must create a GREAT Executive Summary
  3. Must write a detailed Business Plan
  4. Must prepare a Venture Capital Term Sheet
  5. Must have an attorney prepare a Stock Purchase Agreement
  6. Must amend your Bylaws (or a “Certificate of Designation”)
  7. Right of First Refusal/Voting Agreement for VC
  8. VC Consulting Agreement (if Applicable)

Let me address each of these steps briefly.

First, to obtain VC funding, you can’t be operating as an LLC or sole proprietor; you must be a C-Corp and deal with compliance for that designation.

The Executive Summary is what will open doors to Venture Capitalist companies; and for that reason alone, it must be GREAT!

The Business Plan you will need to prepare at this stage is not your one- to three-page document, but a very well researched, detailed document that you should consider getting proper help to prepare.

The VC Term Sheet is typically a non-binding document that outlines the terms of the deal.  It’s an important investor packet item that says, “Here is what we’re all about and what we’re going to give back in return.”

Obviously, the Stock Purchase Agreement is the document that sets the terms for the VC investment, inclusive of the purchase price, closing date, and conditions regarding the issuance of the stock.  Needless to say, this is a very important document that an attorney should handle and/or review to be sure you dot your “i’s” and cross your “t’s”.

Your Bylaws will need an Amendment (or create a Certificate of Designation) that creates the new preferred stock class and addresses anti-dilution provisions, as well as dividend, liquidation, and conversion rights.  This is an item that you can find great templates for online.

The Right of First Refusal document is important if you will be offering more stock later.  Your Venture Capitalist will want the right to fund it first.  As for the Voting Agreement, Venture Capitalists want board positions and, with that, voting rights.  My position is that the borrower should try and limit this as much as possible. In fact, try to leave it out if they don’t bring it up.

Finally, the VC Consulting Agreement will address any resources and/or management teams that will be brought to the table, the fees involved, how long they will be involved with the company and when they will step aside.

As you can see, just this first step in the Venture Capitalist Funding Process is involved.  You need to be prepared to dig in and focus.  In upcoming blog posts, I’ll address subsequent steps in the process.  In the meantime, if you are now going through it or have been through this preparation process, I’d love to get your insights from the experience.


5 Questions to Ask Yourself If You Want to Pursue Venture Capitalist Funding

In my blog post last week, which outlined the features of Venture Capitalists and VC Funds, I wrote about how they work with businesses to fund them through their growth phases.  Today I want to help shed some light on the actual process of gaining Venture Capitalist funds and determining whether your business is a viable candidate for them.

Let’s consider first whether your business is one that will deliver the kind of returns enticing enough for Venture Capitalists.  As the business owner, you need to contemplate:

  • Are you going to have the profit margin necessary to be giving someone else 28-35% of it?
  • Once your business starts to grow, is it scalable; in other words, will your increasing revenues cost less to deliver?
  • Is your industry one where it is common for buyouts to occur?
  • Are you growing fast enough?

Last, but not least, are your business and its future growth defensible?  If you can’t explain it and what you have, how is a Venture Capitalist or VC Fund going to believe it.

Whether you’re going to pursue a Series A or Series B level of funding is determined by where your company is in its growth and this whole journey.  Series A is for those seeking their first round of funding; you’re ready to go and make your mark.  It is a milestone-based investment.  Whereas, Series B investing occurs after you’ve had your initial round of monies and the business is prime for moving to another level of expansion.  At this point, the risk has perhaps diminished some.

Now that we’ve given you food for thought in regards to having what it takes to attract Venture Capitalists, let’s review what comes next…the Funding Process.  The process is a long, resource-intensive one that is not for the faint of heart.  I’m going to break it down for you into five stages:

  1. Prepare
  2. Find the right VC
  3. Targeted Approach
  4. The Perfect Pitch
  5. Due Diligence

In my upcoming articles, I will dissect these stages into bite-size pieces so you can more appreciate what I mean when I tell you that the process is not an easy one, albeit in the end it can be an extremely beneficial one.  In the meantime, take some time to ask yourself the questions at the beginning of this post, and try to determine if your company is poised for the kind of growth that could warrant Venture Capitalist funding.


“It’s Not Personal; It’s Just Business.”… REALLY?!?

Although my intention today was to write more surrounding the topic of  VC funding, I instead felt moved to write regarding a subject about which I have very strong feelings!


“It’s not personal; it’s just business.”

Would you agree that when anyone has ever said this to you, it felt incredibly personal?  After all…would any business even exist or succeed without the people who build it, run it and are served by it? I honestly don’t know how you can get more personal than that.

Now, I have great faith in people; but I, too, have grown tired of this remark being thrown around by those who basically have no intention of honoring a commitment they have made.  When someone uses that phrase, doesn’t it feel as though what he or she is really saying is:

“Thanks for trusting in me and my integrity when things were going great; but how dare you count on me when things didn’t go according to plan…even if it’s the result of my misguided efforts.”

Please understand that in no way am I suggesting most things go according to plan, because that, in fact, is rare.  However, I believe people who make commitments of any kind need to walk their talk in integrity. When things go wrong, they need to put their best efforts forward to find the best alternative outcomes for all those involved, rather than taking the easy way out of…

“Hey, it’s just business, so don’t take it personally.”

Is it not our challenges and obstacles in life that shape who we are, as well as what we give and take from the people who make up the world in which we live?  Is it not our response to those challenges that tells those around us who we really are and what we stand for as individuals?

I believe this to be true; because all we really have of genuine value in this world is our relationships … how we honor them, protect them, and cherish them… especially when things don’t go according to plan.  This is when PERSONAL commitment and responsibility take precedence over accepting failure as an option.  This is when you are given the opportunity to PERSONALLY work with others in finding a new path that keeps you in integrity and walking your talk.

So when you find yourself at a crossroad with challenges in your business and are about to utter these simple words to someone you’ve made a commitment to… “I’m sorry things didn’t go as expected; but it’s not personal, it’s just business.” … please stop and remember this:

Everything in life is PERSONAL and should be treated and protected as such.

Do this and I can guarantee you that, despite challenges or perceived failures you face in business, they will never outweigh your successes in life.

Mary Kay Sheets – Rethinking Business and Making Sure it’s Personal!

5 Common Features of Venture Capitalist Funds Who Can Help Fund Your Business Growth


Seed funding for your business and start-up costs are, obviously, vital for getting your dream off the ground.  Getting these foundational expenses covered by family and friends, crowd funding and/or angel funding is a great way to go.  Once you have gotten established, however, and need more substantial dollar amounts to support your business’s early growth, it’s now time to consider VC (Venture Capitalist) funding.

Now that you have a bit of a track record with your business and the risk for investors starts to diminish, your investor options begin to increase even more.

I touched on Venture Capitalists in an earlier blog post.  Venture Capitalists and VC Funds are individuals or investment companies that use their money (capital), expertise (managerial and technical), and other resources in an effort to continue growing your new business endeavor.  Venture Capitalists are generally compensated via:

  • 2% management fee, plus…
  • Up to 20% interest carried on profits or…
  • Interest on their investment of 25-30%

When referring to a VC FUND, I’m talking about third-party investors who pool their monies (frequently in an LLC or LP) and manage them for the purpose of investing in businesses that may be high risk for normal bank loans.  In general, these funds have a “fixed life” of about 10 years, which includes 3-5 years of an investment cycle, followed by more focus on management and perhaps making follow-up investments in the existing portfolio.



In the early growth phase, VC funds can typically maintain $20-50 million per fund (Series A) compared to VC funds used for mid- to late-growth investments (Series B and C), which can hold $2-14 billion.

Common features of Venture Capitalist Funds include the following:

  • Investors have a legal right to receive interest and repayment of their capital whether the business succeeds or fails.
  • Venture Capitalists invest in exchange for equity stakes in the businesses they help.
  •  ROI depends on the profitability of the venture and its growth.
  •  In general, a Venture Capitalist/Fund will receive its return on investment by selling its shares in the business when it is eventually sold to a new owner after several years.
  •  Due to the fact that their investment is not liquid, VC/Funds will do their due diligence before investing and will want to take part in the growth plan of the business.

A few more points of interest in regard to Venture Capitalist Funds:

  • In 2011 there were approximately 934 active VC firms
  • Through the 4th quarter of 2011, VC funds invested $29.1 billion in 3,752 deals in the U.S.
  • Two-thirds of the 934 invested in three deals or less; 41% did only one deal
  • 250 (27%) of the 934 firms did no new deals, which may indicate they are running short of capital.

In my upcoming articles, I will begin to address the actual process of going after Venture Capitalist funds for your business.  Have you considered whether or not your business would warrant or be of interest to a VC Fund?

6 Tips on Angel/Crowd Funding and 10 Ways to Unearth Funders

For a few weeks I’ve discussed numerous methods for funding your start-up business.  The most recent articles have included information on angel and crowd funding.  In today’s blog post, I’m passing along several tips in regard to the abovementioned types of funding and also methods you can use to find funders.


Tips for Crowd and Angel Funding

  • Resist your desire to raise $1 from a million people.  Think about the maximum number of people you can manage while still protecting your vision?
  • Don’t take money from just anybody.  The funding you accept must be legal and should support your vision.
  • Stay in control of your company for as long as possible; be sure to only share that control with those funders who share your same vision.
  • Determine, in advance, how many shares you want to maintain control of before offering any equity to funders.
  • Map out an investor relations plan for term, communication and exits.
  • Investment terms should be communicated early on and in clearly outlined.  These terms should spell out what the investor is getting right now, how you reached this price, how it may change in the future, and your rights are in the event that there are further rounds of financing.  In particular, crowd investors must understand that an investment of $1,000 that represents 10 percent of the company at the time of investment,  will no longer represent 10 percent of the company if the company grows and gets new rounds of investments.


With these tips in mind, here are ten ways you can locate the funders that you need:

  1. Call your chamber of commerce
  2. Call a Small Business Development Center
  3. Ask your accountant or call a Big Four accounting firm.
  4. Ask your attorney.
  5. Call a professional venture capitalist and ask if he/she is aware of an angel investor group.
  6. Contact a regional or state economic development agency.
  7. Call the editor of a local business publication.
  8. Look at the “Principle Shareholders” section of initial public offerings’ (IPO) prospectuses for companies in your area.  This will tell you who cashed out big.
  9. Call the executive director of a trade association you belong to.  Ask if there are any investors who specialize in your industry.
  10. If you use a large commercial bank, ask your lender.


Now that we’ve spent time delving into angel and crowd funding, in my upcoming blog posts, I’m going to help you do some do diligence regarding Venture Capitalists funding your business.

Rev Up Your Start-Up by Utilizing an Accelerator or Getting Under the Wings of Super Angels

As I have written about previously, incubators are a great way to help you set up and decrease the cost of funding your business, as well as learn the ropes of running a new business.  In today’s blog post, I want to touch on what is these days being referred to as the “new incubators”… Accelerators.


Accelerators –

Basically, accelerators are business strategists who help start-ups by coaching them for a limited time frame, for which they are compensated with equity or deferred payments plus equity.  Their value is in the advice they can provide from years of experience, their wealth of connections and other proven resources.

Depending upon levels of experience and what their track record has been, Accelerators’ fees vary greatly.  Generally the going rate will be $100-$300 per hour, taking into consideration the equity offering agreed upon.

The advantage of utilizing an Accelerator is that it can compress the timeline between start-up and profitability.  However, this comes with the price of sharing ownership in the company and possibly profits and voting rights.


Super Angels –

Earlier I discussed Angel Investors as a business funding option.  Super Angels, in contrast, are groups of serial investors who participate in smaller, early-stage, individual Venture Capital funds of $20-50 million compared to traditional VC funds of $2-14 billion.  These Super Angels tend to target technology and internet- based companies who have shorter ROIs.

Some Super Angels features include:

  • Creation of a professionally-managed investment fund
  • Serial investing (investing in numerous startup companies)
  • Investing at a seed round in startup companies
  • Funding rounds in the range of $50,000 to several million dollars
  • Taking an active role in portfolio companies
  • Raising money from general partners and other principals, without passive investors
  • Participation of fund principals who are experienced entrepreneurs


Accelerator and Super Angel examples…


Rethink, Inc.

Rethink Inc. is a personal, powerful business development firm specializing in CEO Mastery Mentoring, functional and foundational business development, and business funding education and preparation.  All of these are elements necessary to create, protect, operate, and fund a profitable business model.

Fees:  Rethink Inc. offers early stage entrepreneurs (earning under 250K in annual revenue) a discounted hourly rate of $175 or a monthly retainer.  In addition, Rethink Inc. will allow half the rate to be deferred up to 3 years for 1-3% equity.


Super Angel Companies

K9 Ventures                                                  500 Startups
August Capital Partners                                   Felicis Ventures
Floodgate                                                      Founders Collective
Founders Co-op                                              Greylock Partners
Harrison Metal                                                IA Ventures
Lerer Media Ventures                                      Lowercase Capital
Social Leverage                                              SofTech VC
SV Angel                                                        The Founder Fund
Thrive Capital


Later this week, I’ll give you some tips regarding Angel and Crowd Funding, as well as several ways for finding the Funders who may be just the right fit for funding your business.