Venture Capital Funding

Even though some VCs are now putting up a little “seed” funding, they still like to see some proof of your business concept. In other words, venture capital funding likes to follow fast growth potential, big profits, and companies with an exit strategy for an IPO or a sale/merger. Smaller businesses need not apply.

However, there is one government investment program you may want to consider. This is a program run by the Small Business Administration (SBA), and is not so high-tech, nor high profit intensive…

The SBA as Venture Capitalist

This is a major departure from all the other forms of SBA business financing, in that it is not a loan, but rather an investment of equity capital into your business. In other words, this program works the exact same way that venture capital funding works.

The difference being that the SBA provides venture capital funding through “Small Business Investment Companies” (SBIC)s, which are privately owned investment firms licensed by the SBA to provide venture capital to small businesses.

The SBICs provide investment money from both private capital they have raised, and funds borrowed at favorable rates through the SBA.

There are over 400 licensed SBICs in operation today, and they make investments in a broad range of industries and stages of business development. You must remember however, that an SBIC is in fact a government licensed Venture Capitalist, and they will own equity in your business and become involved in how you run your business.

On the other hand, an SBIC may be the only resource you have if you cannot obtain capital investments from more traditional sources.

Unlike the SBA business loan programs described elsewhere, you would apply directly to an SBIC that is best suited to your type of business or financing need. You would present your Business Plan to them just like you would to any other Venture Capitalist, so it had better be top notch. SBICs receive hundreds of business plans, and fund only a few.

That is why it helps to have a referral or introduction to a particular SBIC fund manager. In addition to your banker, talk to your accountant, lawyer, board members, and colleagues to see if you can get an introduction to a particular person in an SBIC.

If you cannot get an introduction or referral, submit your Business Plan to the SBIC suggested by your local SBA District Office.

Additional VC Information

Here are two up-to-date sources of information on Venture Capital--which firms are investing and where they are investing:

• MoneyTree Report
  The most up-to-date information available on Venture Capital comes from the PriceWaterhouseCoopers MoneyTree report. This report tells which VC is currently making investments, and in which industries. It gives the most up to date information on VC activity. To access this report, clickhere.
• National Venture Capital Association
  This is another excellent source of information regarding equity funding. It provides extensive information on the Venture Capital industry. To visit their website, click here.

A Word on Venture Capital

In the event you do need to seek venture capital for a high profit potential business, there are a couple of key issues you need to remember:

1. Preparation. You must be prepared with your "pitch"; your Executive Summary; and your Business Plan. These three things must represent your absolute best effort if you want to make a positive connection with a VC.

   You also must be ready to give a presentation at any time.



2. Introductions. As I said in the Planning section, large VCs do not read business plans that come in "over the transom." You need a personal introduction or referral before you will be taken seriously. This can occur person to person, or at an event sponsored by VCs.

   Work the Internet. Use your network of contacts. Join your city's VC association if you have to…but get that personal introduction to your selected VC.