Venture capitalists have played an important role in funding the semiconductor industry.
Start-up businesses usually need cash to realize their founders' ideas, and venture capital is one possible avenue for funding. Venture capitalists seek promising early-stage businesses to invest in. Historically, these investments have been concentrated in the software, semiconductor, biotechnology, telecommunications and Internet retailing sectors. (See Reference 1.) Venture capitalists look for high growth potential and expect to take a substantial ownership stake in exchange for investing in risky, unproven businesses. Understand how venture capitalists do business before approaching them for funding.
Positioning
Make sure your business idea is right for venture capital. Venture capitalists need to invest in scalable businesses that promise the potential for high growth. They prefer investing in young businesses rather than mature ones because newer firms are poised to ride the growth phase of the business life-cycle.
Location
Choose the right location. Although they are certainly not the only options, established hotbeds of venture capital activity like California's Silicon Valley and Boston, MA have the right mix of tech and biotech talent, venture capitalists and supporting professionals to fuel these types of businesses. (See Reference 1.)
People
Put together a strong management team. The prevailing wisdom in venture capital is that the team is more important than the idea. (See Reference 2.) Principals should have prior experience in the new business's industry, preferably from a notable competitor or partner. Affiliation with prominent industry names plays very strongly in building a credible management team.
Planning
Create your business plan. This exercise will force your team to confront market realities such as the competitive landscape while you refine your product concept and craft the revenue model, making it more attractive to venture capital investment.
Development
Develop your business idea to the extent possible with limited funding. This phase of operations manifests itself variously as bootstrapping or seed-stage development. Whatever your resources at this stage, produce a proof-of-concept that will demonstrate the strength of your idea to venture capitalists in a tangible way.
Search
Search for the right venture capital partner.
Create a short list of the most suitable investors. Some specialize in certain sectors such as biotech. Some don't do seed-stage funding; they will only entertain follow-on opportunities. Filter your short list based on your company's product, location and stage of development.
Preparation
Know your 30-second "elevator" pitch cold and prepare a dynamic investor presentation that showcases your product, management team and business plan. Being confident and prepared at the right moment can make all the difference in procuring venture capital investment in your up-and-coming business.
Contact and Presentation
Contact potential investors, give them the "elevator" pitch, share your executive summary and set appointments to present to them. When you do meet the venture capitalists, remember that confidence and reserve at this stage will present an image of strength, not desperation. Let your idea speak for itself by letting potential investors audition your proof-of-concept.
Closing
Ink the best deal you can.
Interested venture capital investors will submit term sheets that spell out their offers in terms of dollars, ownership percentage, governance and restrictions. Having several competing investors at this stage gives your company options and leverage. Besides negotiating for the very best terms, your company will want to consider strategic factors such as the investors' track record in your industry and how involved they will be in decision-making.
