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15 Things You Need to Score VC Funding
By Vivek Wadhwa   |   Wednesday,August 12,2009
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A veteran entrepreneur tells you what venture capitalists are really looking for before they'll make a deal.

I've often said that instead of soliciting venture capital for your new startup, you're better off buying a lottery ticket. You'll save time, money, and spare yourself a lot of heartache. But when you've reached the stage in your business where you have a product that customers love, a business model that works, and a strong management team, everything changes. Now the venture capitalists knock on your door, and the odds of getting a deal become much better.

You need to consider your options very carefully at this point. VCs can be the best thing that happened to your company or your worst nightmare (see BusinessWeek.com, 7/18/06, "Venture Capital: The Good, Bad, and Ugly").

If you choose the venture route, prepare yourself for the mating dance that's about to begin. In this first article, I'm going to tell you what the VCs look for and some of the big hurdles you'll face. If you overcome them, you'll likely get offers from multiple firms. In my second article, I'll discuss what you should look for in a firm and the importance of being picky.

VCs take pride in being risk-averse. They receive hundreds of business plans every month and typically consider only a handful. They are more likely to look at companies that are well known or come with strong recommendations from people they trust. Their due-diligence process often takes months and is extremely rigorous. Most companies don't make it through. To prepare, you should look at your company the way they will.

Here are the 10 things they'll be looking for that you'll need to have in place:

1. Market-ready product. You need to have gone through the trials and tribulations of building a product that works well and meets customer needs. It is not enough for your product to work for one type of customer; it must be able to satisfy the needs of many (see BusinessWeek.com, 5/4/06, "Countdown to Product Launch (Part I)").

2. Solid business model. You must have a proven business model with a clear path to long-term profits. You need to have worked out all the details of what you are selling, to whom, and at what price; and how you are going to reach your customers, persuade them to buy from you, and support them when things go wrong (see BusinessWeek.com, 5/12/06, "Countdown to Product Launch (Part II)").
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