Seeking Venture Capital?

by Richard Upton, General Partner at Harbor Light Capital Partners

Raising venture capital is a highly competitive and difficult process.  Most venture capital firms evaluate over 100 opportunities for each investment consummated.  If you are considering raising capital from venture or angel (high net worth individuals) investors, here is a summary of what you will need to be successful.

The most important factor in your ability to secure venture capital is the experience and talent of the senior management team.  Investors typically prefer a minimum of five years industry or related experience from the founders.  Prior experience leading start-up or early-stage companies is also highly desired because those people typically understand the challenges of building a successful company.  Often times, having some experience with failed ventures provides valuable insights for the entrepreneur.  Investors also seek founders and CEOs who have a natural ability to attract and retain highly-skilled managers to support them.  Particularly important is a deep knowledge of sales and marketing from the CEO and/or the senior sales team.  Understanding your marketplace and knowing how to sell your product or service is critical to scaling your company and delivering on the growth expectations of your investors. 

Another important element that venture capital investors evaluate is the size and growth rate of your target market.  Investors prefer large, fast growing markets where a talented team is able to be successful even when the original plan does not work.  In other words, big, dynamic markets minimize risk as good managers will find ways to develop an effective plan when the unexpected happens.

The proprietary nature of your product or service is also important.  Investors demand that your product be unique and protectable via patents, trademarks or other market-related barriers to entry.  Investors will assess your odds for success by reviewing the competitive landscape as well.  If large, resource-rich companies exist in your industry, competing successfully may prove difficult. 

Lastly, having a scalable business model is preferred.  This means that you can easily replicate your product or service without additional capital and/or time.  Having some component of recurring revenue is attractive as it tends to connect you more tightly with your customers and builds powerful brand equity in your products over time.

There are many more factors that investors consider in evaluating opportunities.  However, if you can address the highly critical factors above, your chances of raising capital will increase dramatically.  A well written business plan and a compelling, professional investor presentation are essential in demonstrating that your venture deserves serious consideration from investors.  Obtaining a personal introduction, if possible, to investment firms or angel groups tends to be more effective than contacting investors directly. 

You can also participate in events that provide you with an opportunity to connect with many investors in a single day.  For example, the Speed Venture Summit is an event where many investors cluster to evaluate many companies in a highly efficient format.  If you have plans to seek venture capital and are interested in presenting your company to potential investors, you should consider the upcoming Speed Venture Summit (http://www.speedventuresummit.org/) on October 28th at the Crown Plaza in Nashua. This event is the premier event for fast-growth businesses and investors in New England, hosted by the New Hampshire High Technology Council and the New Hampshire Small Business Development Center.  My partners at Harbor Light Capital Partners and I look forward to participating in the Summit and supporting this innovative approach to meeting exciting companies and talented management teams.

Richard Upton is a General Partner at Harbor Light Capital Partners, a private investment firm that invests in early and growth stage companies located in the Northeast.  Mr. Upton was the founder and President of Upton Advisors, LLC, a boutique investment bank serving middle market and emerging healthcare companies throughout the United States.  Mr. Upton has been advising early stage and growth stage companies since 1992 both as a senior healthcare investment banker for Salomon Brothers and later as an independent adviser.  Mr. Upton has completed engagements representing aggregate transaction values in excess of $5 billion.

Mr. Upton has served on the Board of Directors of six companies and helped start four companies. He currently serves on the Board of Home Diagnostics, Inc. (NASDAQ: HDIX), is a member of the Investment Committee of the New Hampshire Charitable Foundation, and is former Chairman of The Pine Hill Waldorf School.  Mr. Upton is also a founding member of Northeast Angels, an early stage angel investing group based in southern New Hampshire.  Mr. Upton received his MBA degree from The Darden School at the University of Virginia and a dual BA degree in Economics and English from Amherst College.

QUESTION: Can you please provide any tips that come to mind on preparing an investor presentation.  Key items to present, length of presentation, # slides, format, other.  Thanks!

ANSWER: Dear Reader, There are lots of useful resources online and offline to help entrepreneurs create effective investor presentations.  However, I usually recommend the Entrepreneurs Pitch Workbook developed by Canaan Partners because it is great and free!  Here is the link http://www.canaan.com/home/partnerships/poptech.

QUESTION: Do you have any strategies that you can recommend to businesses in finding the "best fitting" venture capital firm for them? 

ANSWER: The best advice is to do your homework and approach fund raising like any other business challenge....have a plan.  Most investors prefer to invest locally so research local firms first.  Target firms that invest at your company's stage...seed, growth or later stage and have experience in your industry or a related industry.  You should define your ideal VC relationship (what do you want from a capital partner?) and use it to assess prospective firms.  The VC relationship should be a strong partnership where the entrepreneur is able to share information freely and the investor is able to provide more than just capital.  You will want to contact several of the VC's portfolio company CEOs and inquire about their experience working with the VC.