5 Tips To Help Entrepreneurs Find Early Stage Capital in a Tough But Improving Market

Research shows what venture capitalists recommend for success in obtaining early stage capital. Based on national survey of 74 VCs in 23 states.

Immediate Release March 23, 2003
Contact info at end of release

5 Tips To Help Entrepreneurs Finding Early Stage Capital in a Tough (But Improving) Market
How the Venture Capitalists Nationwide Say to Do It

(Fountain Hills, AZ) -- Profit Dynamics Inc., a research firm in Fountain Hills, Arizona, founded by Brian Hill and Dee Power, authors of the books, "Attracting Capital From Angels," and "Inside Secrets To Venture Capital," recently conducted a survey of 74 venture capital firms from all regions of the United States. They were asked their views about the outlook for the early stage capital market in the upcoming year. On the whole, the VCs
responded with at least a moderate degree of optimism, the overall theme being--the worst may be over. They were then asked this question:

*** What advice would you give to entrepreneurs looking for early stage capital? ***

1. Be prepared
In both good times and bad, this is good advice: Be thoroughly prepared for the presentation to VCs and focus on why your business will make money for investors.

    
2. Conserve Cash
In the late 1990s, capital was much more plentiful and in some cases, management teams looked at the term "burn rate" to literally mean they had investors money to burn, and when one round of
financing ran out, they could easily go out and get more. From 2000 and up to today, a massive reality check occurred in the market for early stage capital. The emphasis now is on conserving capital
and reaching as many milestones as you can on your own without investors money.

3. Be committed
In the due diligence process, investors try to determine the level of commitment the management team has to the business. Will the team exhaust themselves trying to make this business succeed?
Part of that commitment can be financial, both in terms of willingness to commit personal resources to the venture, and the willingness to forego compensation until the cash flow of the venture becomes positive. The harsh reality now is that a
company may not be able to secure that follow-on round of capital, so the seed or first round of financing is even more precious and must be conserved.

4. Have A Strong Management Team
One way investors mitigate risk is to only put money behind the very finest management teams. An ever-viable maxim applies (and you imagine VCs carry this around in their wallets): a great team
with a mediocre idea succeeds more often than a great idea with a mediocre team. The strength of the management team is even more critical to them when the new venture will be trying to gain a
foothold in tough economic times.

5. Persevere
Even in the exhilarating days of the Internet boom, entrepreneurs were sometimes shocked by how long it took them to obtain seed stage or first round capital. For one thing, they did not take into
account the incredible number of ventures that were begun in a short period of time, all pounding on investors doors at once. Today, the number of entrepreneurs looking for capital has declined, but
at the same time, investors have become much more cautious. The bottom line: nothing succeeds like perseverance.

    
Our survey pointed out a definite lifting of the gloom that has hung over the early stage capital market for more than two years, but not all VCs were in agreement, as quotes from these two VCs show:

"Good entrepreneurs will get funding! Great companies are often started in a recessionary environment."

"Keep your day job."

Perhaps this venture capitalist most clearly stated what entrepreneurs looking for early stage capital in 2003 should keep in mind:

"Conserve capital, get customers, be patient, be persistent."
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Brian Hill, Co-author with Dee Power
of "Attracting Capital From Angels: How Their Money and Their Experience Can Help You Build a Successful Company, published by John Wiley and "Inside Secrets To Venture Capital" published by John Wiley & Sons 2001 available in bookstores nationwide amazon.com, barnesandnoble.com, borders.com and http://www.capital-connection.com
Brian can be reached at business@capital-connection.com