|  Choosing a Venture Capital Firm
According to Pratt's Guide to Venture Capital Sources (Needham, Massachusetts: Venture Economics, Inc., 1990) there are five ways of choosing a venture capital firm:
Geographically:
This may be the single most important factor today. If you are unable to attract a "local lead" investor, you will have a more difficult time raising capital. The closer the venture capitalist is to the investment, the easier it is to "add value" to it.
Stage of development:
Many investors have a stage-of-development bias. There are some who prefer the seed capital arena, while others are only interested in later-stage investing. Make certain that your company's stage of development meets with the preferred stage of development of the venture capitalist firm.
Amount of capital needed:
Many venture capital firms have an upper and lower limit to the size of the investment. If your project falls far outside a firm's range, it is better not to approach them.
Industry specialization:
The venture capital industry is witnessing greater specialization than ever before. Some investors specialize their investments in medical technology, communications, consumer products and distribution.
Venture capital leadership:
It is advisable to find the lead venture capital investor first. Let this venture capitalist complete the syndication, rather than starting with smaller investors first. Approaching the Investor Arendal luxury hotelsHow do you approach the venture capitalist? Many authorities say that the best way is through a quality introduction. Venture capitalists are more likely to turn down an unsolicited business plan without giving it much attention. Your banker, a lawyer, an accountant or even another venture capitalist can make the introduction. If these people are unwilling to provide the introduction, their hesitancy may indicate doubts about the financial ability of you and/or your product, which explains why they do not want their name associated with your venture. If your contact does not know any venture capitalists, you may have the wrong banker, lawyer or accountant. The best introduction may be from a successful entrepreneur who has received funding from a specific venture capitalist. The first contact after the introduction should be by telephone. The purpose of the call should be to get the venture capitalist to request your business plan and be willing to read it. The sole purpose of the business plan is to get a meeting. Surviving the Process
What should entrepreneurs bear in mind with they are in the thick of the long and expensive process of attracting venture capital? Be prepared.
Have the fundamentals covered before looking for capital. Two problems can result from being unprepared. First, once an investment opportunity is rejected, it is very difficult to get it reconsidered, even with a proper introduction. Second, if your proposal is rejected by a number of firms, it may get an "overshopped" reputation. Venture capitalists trade information quite freely and a turndown by one firm may influence others. Show you can compete globally.
Specialization is the key: products must fit into a global niche. Don't go to a venture capitalist empty-handed.
You have to show your commitment to risk everything you own. Don't ask for more than you unquestionably need.
Don't ask for $5 million if all you really need is $50,000. Venture capitalists can spot an overestimate right away. For that matter, they can also spot any other attempts to pull the wool over their eyes. Many venture capitalists are leery of status-spenders.
Brian Marshall, merchant-banking vice-president for Royal Bank Venture Capital in Toronto, says he's turned off by candidates wearing flashy clothing or driving costly sports cars. Harry Mortimer, a managing partner with the Toronto-based Ven-Growth Capital Funds, jettisoned a deal with an entrepreneur who flew first class when Mortimer himself was traveling economy. What about camp followers?
There are two types of camp followers. The first is a series of smaller investors who "seed" the deal to establish prices and credibility. The second type is the well-known person who becomes an advisor or a director, primarily to establish credibility. The second type may or may not make a small investment to confirm faith in the project. In most cases it may be best to avoid adding camp followers to your project if there is not an operational benefit from doing so. Small investors can complicate a larger venture by making compliance with securities laws more difficult, by balking at the seemingly onerous terms of the professional financing, by "helping" negotiate the terms, and by presenting an unstated but always present risk of suit in the future. Should you require signed secrecy agreements?
They may be an impediment to obtaining financing. Before you decide to ask for them, make sure that the secret is really worth all the effort. It should be an easily definable entity—like the formula for Coca-Cola. Venture capital is not for every entrepreneur. Accessing venture capital takes time, money and a certain amount of exposure. For further assistance with loan issues, contact a consultant at a Small Business Development Center. > See also: Loans & Capital | 
