When to Work With a Venture Capitalist

Trying to land an investment from a venture capitalist or any other outside investor can be intimidating and stressful. Some companies don’t have a choice, but if you have the power and flexibility to wait for a certain circumstance before seeking outside investments, you will be better off in the long run. Here are three situations in which it is most attractive from an entrepreneur’s standpoint to work with outside investors:

When you don’t need the money
If your company does not have an immediate need for outside capital, you have a lot of bargaining power. If terms are not attractive, you can walk away from the deal. On the other hand, if you are working with outside investors when you desperately need the money, you have almost no bargaining power. Being able to walk away from a deal at any time is a very powerful tool that should not be overlooked.

When you desperately need industry experience or knowledge
If you have reached a point in your venture when you desperately need specific industry experience or knowledge, then it might be beneficial for you to work with a venture capitalist who specializes in your industry. For instance, if you are a biotechnology firm and you are almost ready to hit the market, a venture capitalist might be able to help you with regulation guidelines and procedures on top of providing you with the necessary capital you need. Or if you sell a consumer product, you can work with a venture capitalist in that industry that might have connections with large retailers such as Target or Wal-mart and might be able to get you into those stores. In the cases where the venture capitalist can provide you with more then just money, it might be worthwhile to work with them.

When your company has been operating for a while
Most importantly, your company must be at a stage where your operations have been running for a while and all the flaws have been worked out. You do not necessarily need to be running a profit, but you should at least have a track record. At this point, you should be able to estimate future earnings with somewhat certainty. This is very important because if strong estimates cannot be produced, a venture capitalist might undervalue or overvalue your business, neither of which are beneficial situations for anyone.

Working with outside investors is a tough situation, but getting all of the bargaining power you can and choosing to work with an outside investor at the right time can reduce stress and pressure tremendously.

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