1. Your products or services must be proprietary or unique.
Do you have a proprietary or unique product that creates barriers to entry and/or precludes copying by the competition? Such interests could be protected, if you have a product, by patent rights (venture capitalists love investing in products that are protected by a registered patent). In the alternative, if you have a service model, is there something so unique to that model that makes it difficult for the competition to easily copy?
For instance, our business is a service model and, accordingly, cannot avail itself to the protection of the patent system. However, our proprietary trade secret systems developed over the course of a decade give us a unique advantage in the marketplace in the field in which we exist. This is the type of uniqueness or proprietary nature, outside of patent rights for a product, you should try to emphasize whenever speaking about your own business model.
As such, when attempting to attract venture capitalists to invest in your business always be prepared to discuss how your product or service could not be easily replicated by a competitor and, as such, the market for said product or service will remain exclusively yours for the foreseeable future.
2. Use existing sales as evidence of consumer demand.
Proprietary or not, venture capitalists want to see that your product or service is being received well by the relevant consuming public. In this regard, what better proof of this is there than sales? For instance, you may have a patent on the latest version of the iconic widget. But if you have been open for business for two years and have only sold 20 units for $50 this is a big red flag that a market for your product, even if proprietary, simply does not exist.
As my old coach use to explain to us every day at practice, "Potential doesn't mean sh&%t!" Real sales, proof of consumer demand, this is what venture capitalists are looking for. So be prepared to discuss how your goods or services have hit the ground running and offer proof of consumer interest and validation in the form of hard sales numbers.
3. Be able to answer the question how their money will increase your sales.
Perhaps the most important feature of any discussion is how their money, if invested, is going to increase your company's sales. When speaking to a potential investor, it is easy to lose focus on the goal of the conversation. Often business owners get so wrapped up in talking about their products or service model they forget that they are pitching their business as an investment opportunity to a venture capitalist. You must never lose that focus.
Rather, after you have addressed how your product or service is proprietary or difficult to replicate and established a base line for interest in the market by consumers through existing sales or otherwise you must be ready to make the case as to how the venture capitalist's money will increase your sales exponentially. For each model it is different. Perhaps you have already marketed your product well enough to have orders you cannot fill and the money is required to ramp up production facilities to satisfy existing orders. In the alternative, maybe your marketing efforts have been limited to date but once infused with capital you will be able to begin a nationwide marketing campaign that will increase sales tenfold.
Whatever the case you must have a plan for how their money will increase sales or revenues and be able to intelligently and methodically go through the numbers of the plan to secure the investment. The less speculative the plan is the greater chance you will be able to get the venture capitalist on board.
4. Have an exit strategy.
Finally, always keep in mind a venture capitalist's main goal: How am I going to make money off of my investment with your company? It's a fair question and one that many start-up companies fail to address with rigid precision. This is where all of the factors above come together to convince the investor that your company is one they want to invest in.
There are generally two ways a venture capitalist will reap rewards off an investment with a company. First, if their investment leads to such a dramatic increase in sales that within a few years their initial investment has not only been paid back by the increased profits garnered by the same but they are then also reaping additional revenues above and beyond their initial investment from the continued sales of the business. Second, and often the preferred strategy, the business is sold within a few years of the investment providing them a multiple return on their capital.
No matter what your product or service you must be prepared to address these four factors. If you do you may be rewarded with the capital you need to take your business to the next level.