Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Essential Element #4: Know Your Odds in Securing Funding.

As can be expected for start-up companies, venture capital financing is very difficult to secure. Most venture capital firms receive from several hundred to more than 1,000 business plans each year. As one can imagine, many of these plans are not reviewed or even looked at. Of the business plans that are reviewed, one can expect the following:

  • Sixty percent were rejected after a 20- to 30-minute scanning.
  • Another quarter was discarded after a lengthier review.
  • Approximately 15% were investigated in depth, and two-thirds of those were dismissed because of serious flaws in the management team or the business plan could not be easily resolved.
  • Of the 5% that were viable investment opportunities, terms acceptable to the entrepreneur(s) and other existing stockholders were negotiated only 3% of the time.

 

Therefore, as an entrepreneur with a comprehensive business plan being the ticket for consideration, one has only: 1) a 15% chance of being seriously considered for an investment, and 2) a 3% chance of securing capital from the venture capital community. Also, as a rule of thumb, it takes approximately 150 to 300 hours to develop a comprehensive business plan. Finally, it should be noted that entrepreneurs often have unrealistic expectations regarding the time it takes to secure funding from private equity investors.

  • For angel investors is it typically 3 to 6 months.
  • For venture capitalists it is usually 9 to 12 months or more.

In today’s environment these time lines are much longer.

As outlined, venture capital funding is not for the faint of heart.

The information outlined in this article comes from my new book entitled “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up companies.”  This book is available at www.carlsbadpublishing.com.

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February 16, 2009 - Posted by | Venture Capital

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