Things You Have to Know When Raising Your First Round of Capital - Eric Wechselblatt :: American Venture Magazine

Things You Have to Know When Raising Your First Round of Capital - Eric Wechselblatt :: American Venture Magazine: "Things You Have to Know When Raising Your First Round of Capital
By Eric Wechselblatt"

Many entrepreneurs raising their first round of institutional capital already have the necessary skills to get from introduction to transaction closing. They just need some guidance to navigate the process. Here are three common questions and, more importantly, answers, regarding the funding process. Like many things in life, once you understand the process, your chances of success grow exponentially.
1. What is best way to target investors?
There are two main ways that companies are successful in meeting active investors. The first, and more targeted approach, is to find legal counsel, accountants or other professionals in your community to make the introductions for you. A venture capitalist or other institutional investor is more likely to read your executive summary if it is sent by a professional with whom the investor already has an established relationship, and many professionals who work with institutional funds and VC-backed companies have strong relationships with numerous investors. This approach allows you to truly target active funds who will be interested in investing in companies in your region and industry, and who fund the amounts that you are seeking to raise.
Companies seeking investment capital have also found success by making presentations at a local or regional venture fair. These presentations provide the company a forum to make a five to ten minute pitch to dozens of investment sources, depending upon the event.
You benefit by getting in front of a large number of possible investors at the same time. In addition, you identify your target audience by allowing investors to approach you at the event after your presentation. The downside is that first impressions are very important and moving straight to the venture fair presentation may not give you the opportunity to get enough feedback in order to make a polished presentation.
2. Why is it sometimes difficult to get a straight answer from investors that want to "pass"?
Some institutional funds may not be interested in investing in a specific industry or region. These investors will immediately say so. However, many investors are hesitant to say “no thanks” even if they think the company is unfundable. These investors want to ensure that they still have some opportunity to invest if the technology or industry becomes “hot” or simply more mature, they want to maintain good relationships with the people who may become the region’s serial entrepreneurs, or they may simply want to hedge their bets if they realize they are wrong...