How in the world do I get venture capital?
By Eric Bluhm • Bankrate.com

Know the typical blunders startups make before approaching a venture capital firm. Take it from a pro and effortless smart guy, Shawn D. Myers, an Associate with 21st Century Internet Venture Partners, based in San Francisco:

Q: What are common mistakes entrepreneurs make when trying to secure venture capital?

Myers: One of the primary rules for business is "know thy customer." Before approaching a VC firm you should know what they are looking for. Don't send your great opportunity in sewage treatment to a venture firm solely focused on Internet investments.

It's also important to keep in mind what the VC should not see. If one of its portfolio companies is identified as the primary competitor in your presentation, how does that make you look?

VC's want to be sold on your idea quickly and cleanly. Your presentation should get to the point -- anticipate any questions the firm might have. Businesses are judged by quality not quantity, and venture capitalists are more impressed by a strong team than by a lengthy business plan.

Finally, obtain referrals. The signal-to-noise ratio in the business-plan business is out of control. Having a referral gets attention much faster then sending out your business plan to any venture e-mail address you can find.

Q: After a cogent business plan and viable business idea, what else is an absolute prerequisite for venture capital?

Myers: While the real estate business has the "location, location, location" maxim, Internet businesses require "people, people, people."One of the most significant throttle points on growing businesses is attracting and retaining the people who will enable its growth. You don't need to have every member of the executive team in place before asking a VC for money, but the firm must be convinced that you have the ability to attract the right people at the right time to keep your business growing.

Q: On average, how often do startups return for more VC funding prior to an IPO?

Myers: It varies greatly and there are no hard and fast rules here, but companies generally need to raise money about every six months. Usually it takes three to four rounds to reach an IPO, with the most successful companies reaching the public markets in less than two years.

-- Posted: March 15, 2000