"How Hard is it to Raise Institutional Venture
Capital?"
Securing an investment from an institutional venture capital fund can be extremely difficult. Pratt's Guide to Venture Capital Sources estimates that only five business plans in 100 are viable investment opportunities and only three in 100 result in successful financing. Other sources estimate that the odds could be as low as one in 100. Pratt also points out that 60% of the proposals to venture capitalists are usually rejected after a 20-30 minute scanning, and 25% are discarded after a lengthier review. The remaining 15% are looked at in more detail, but at least 10% of these are dismissed due to irreconcilable flaws in the management team or the business plan.
Another consideration in the ability to raise institutional venture capital is the amount of venture capital being sought. For amounts greater than several million dollars, a company can seek out capital sources in distant locations like New York. However, companies seeking $1 million to $3 million face a different task when seeking capital because they need strategic guidance that can be provided most productively by local venture capitalists.
Small businesses and start-ups can improve their chances of receiving venture capital by presenting a well organized and detailed business plan with realistic financial projections. Entrepreneurs should emphasize their managerial capability, market attractiveness and cashout potential. However, remember that the business plan will only result in a meeting. At the meeting, be prepared to make a formal, persuasive presentation that will give the venture capitalist a positive impression of the product and management team.
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