Training & Development

Quint Column: What venture capital firms look for

Quint Studer.

When I meet with small business leaders in our Studer Community Institute roundtable sessions, there are typically two prevailing challenges: 1) Attracting and retaining talent and 2) Getting access to capital.

Let’s talk about the second issue — Cash. Small businesses getting the money they need to get started is a complex issue that I will address in a variety of ways over the next several months. Today, let’s look at it from a big-picture standpoint.

Anyone who has started a business knows that finding money is both critical and difficult. For the business to be successful, access to capital is vital.

When Gallup CEO and Chairman Jim Clifton was in Pensacola years ago he brought up this point. Gallup’s research shows that for cities to be successful, a key question should be asked: Which companies have revenue generated outside of the local area that is then invested in the community, and which companies could grow if they had the capital to do so?

Clifton’s message is that cities tend to spend more time recruiting out of area investments than retaining businesses that are already providing a better quality of life for the community and employees – and could have the potential to get bigger.

So let’s say you’re a startup or a young company. What do you do to find capital? I get a chance to interact with enthusiastic people in this position often as either as a judge at various “idea pitch” competitions or from people who contact me directly. While many ideas have merit, it takes more than a good idea to start and grow a business.

The process we followed for the Pensacola Business Challenge years ago fits a good mold.

Here are my tips for people looking for capital to start or grow their business:

— Get the advice and guidance to complete a business plan. The Small Business Development Center, as well as many online resources can be very helpful. Having a business plan will greatly increase the odds of getting need capital no matter whom the pitch is being made to. Websites such as LivePlan can help you craft and create a business plan with the information and numbers you need.

— Friends and relatives are still a common investor. Startups have a difficulty getting early funding, that’s just a fact of life. While not ideal, friends and relatives still are common investors or a loan provider. Clear understanding of how this arrangement and/or loan will work is critical for all. Another option entrepreneurs often use is to pursue a loan through a lending institution and have someone with solid finances guarantee the loan.

— Consider government programs such as Small Business Administration loans. The government has some fixed loan programs in which they partner with community banks to help boost the borrowing appetite for a startup company like the 504 and 7a loan programs. We have people and organizations here locally that can help, including Florida First Capital Finance Corporation, which can help navigate that process.

— Startups are unlikely to get help from venture capital. Venture capital companies are investing other people’s money that they have raised based on an anticipated return. For these companies to raise more capital from investors, past success is a must. So unless the person starting a new company has a decorated business track record, venture capital is rarely for startup or very young companies.

If your company can attract attention from a venture capital firm, they will be looking at several factors: ownership, the company’s performance, and the teachability of the top leader. Before they decide to invest, venture firms will need to see how money will be used and what outcomes are expected. Be ready to open all the books. With any investment will come operational oversight, including board seats controlled by the venture firm.

— Be ready to put up personal guarantees. I have heard many people share how they are sure the company will be successful. Yet when asked to pledge personal assets, they say no. This is a red flag to investors.

I have great respect for anyone who starts a business and or runs a company. While it can appear fun on the outside, it is a great challenge. It takes resilience, smarts and risks.

Let’s be thankful for these individuals. They are the backbone of America and our community.