So you have a compelling business proposition, a convincing business plan and an outstanding management team, but still lack the practical knowledge to obtain venture capital financing? The following provides some essential guidelines and steps.

Firstly, ensure that all necessary documentation is in order. This should include; an executive summary that will also serve as an initial proposal document; a business plan including financial projections; resumes of founders and management; and a capitalization table showing current ownership.

Secondly, compile a broad list of venture capital providers that are linked to your industry or geographic area. Local business centers, chambers of commerce and libraries are a good start. The internet is also an excellent resource providing information on both government-sponsored and private sites. Paid subscriptions may be the most direct method, such as the US-published Pratt’s Guide to Private Equity Sources and hiring a research consultant may be a good investment.

The next important step decision is whether to be broad based or selective in approach. Venture capital firms typically have investment criteria based on stage of business development, industry focus, deal size, and, often, geographic preference. They are looking to invest in opportunities that leverage their expertise and provide synergy opportunities with their existing portfolio.

In targeting a very wide range of firms a company will receive a high proportion of rejections, irrespective of the merits of the business. However, proponents of this approach argue that it provides maximum exposure and captures firms that are changing investment focus. In compiling and mailing a standard proposal package, a business can easily target upward of 500 potential investors.

At the other end of the spectrum, a company can carry out extensive due diligence on individual venture capital firms and concentrate their efforts in tailored pitches to 15 – 20 firms that provide the best match.

This method makes sense when approaching the relationship from a partnership perspective; venture capital firms provide expertise and contacts as well as capital and will also exert control in the business. The disadvantages are that the method is time-consuming, the targeted firms may not be investing, or they may reject the proposal despite the perceived fit.

The best approach may be in the middle, where it is worth conducting an initial screening process to eliminate those venture capital firms that will clearly reject the proposal, but maintain a broad enough scope to maximize opportunities.

Having made the approach, a company can expect to receive a response within a couple of weeks. The reply may be a definitive rejection, a request for further information, or a meeting invitation. In the case of rejection, it is often constructive to request feedback since revisions in the business plan, strengthening of the management team or more market research may improve future prospects.

Given the large volume of proposals received by venture capital firms and the high level of rejections, any positive response is a good indication that the firm is genuinely interested. Management must then use its selling skills to convey the exceptional merits of the business, undergo a rigorous due diligence process, and negotiate to secure a transaction that meets both the investor’s and the company’s needs.