The Entrepreneurial Bible to Venture Capital summary

With the start-up boom, VC deals are being made all over the world. Yet how exactly does a VC firm function?

A venture capital firm is usually structured as a limited partnership. Most investment capital comes from limited partners (LPs) while the fund’s general partners (GPs) invest that capital in various projects on a limited partner’s behalf.

Every start-up needs cash to get off the ground. One way to secure needed investment capital, especially when you’re first starting out, is to find an angel investor.

Angel investors are individuals who personally invest in companies to help them grow. The first “angels” appeared in Los Angeles in the 1920s. At that time, wealthy individuals financed the first Hollywood films. The term “angel” later spread to other business fields, and wealthy donors willing to part with cash to benefit young companies were dubbed business angels.

The golden rule of real estate is location, location, location. For venture capitalists, however, it’s management, management, management.

A start-up’s success depends on having a flexible yet skilled management team. It doesn’t matter if the start-up has a great business plan. Realistically, the management team will have to revise that plan, changing directions to respond to market needs and pressures. They will always need to be ready to face unexpected challenges.

Sometimes entrepreneurs can lose perspective and go on a spending spree after they raise needed capital. Let’s review common pitfalls so you can avoid making this mistake.

Don’t pour too much money into marketing early on. Start-ups should grow by creating a compelling product that fills a market niche. If you’ve done your job well, you shouldn’t have to spend a lot of time or effort explaining your product – your product should speak for itself.

A venture capitalist’s core strategy is to invest in a start-up with the goal of turning a profit once that company is either sold or goes public. As an entrepreneur, you have to show potential investors that you’re aware of their goals by presenting a good exit strategy.

The challenge for a start-up is to develop a sustainable business with steady revenue and loyal customers so that eventually, it can be sold. Not an easy task, and even Google struggled with it.

Venture capitalists are busy people. To secure needed financing, don’t waste the precious time they grant you. Have all your materials ready before you meet to make a good impression.

Know that the days of lengthy, multiple-page business plans are long gone. Investors now want to see snappy, concise plans with clear goals. Entrepreneurs need to show that they can launch their ideas in the market and analyze results quickly – as well as be prepared to make big changes if needed.

One important detail that can play a huge role in your quest for financing is your pitch, or the brief summary of your project. You’ll need to prepare a few different versions of your pitch to use on different audiences.

Use a quick, 30-second version at networking events, but have ready an in depth, two-minute version for people who want to know more. Prepare a 20-minute version for potential investors who want to know everything.