By Dean Whittaker

Access to capital has long been the key to economic success.  Whether it is from savings, friends and families, venture capital firms, or borrowed from a bank, capital is a key component to economic growth.

Recently, I attend a panel discussion by a group of venture capital managers who outlined their view of the current economic situation to an audience of start-up entrepreneurs.  They made several key points.  While capital is available, the competition for access to it has grown significantly while fewer VC s invest due to low rates of return and business failures.  They pointed out that start-ups now compete with established companies that have track records, profits, established customer bases, and proven business models. What was surprising to me was the exponential growth rate they seek of 20% or more per year with the end goal of being a $100 million company within 3-5 years.

The panelists pointed out the need to think like an investor when approaching the VC companies.  Look for ways to mitigate the risks: customers, products, management, market, capital, and investment.

They offered seven tips to the would-be venture capital clients:

  1. Venture capital firms tend to bet on the jockey not the horse – talent is the key.
  2. Be creative in a small box – stay focused.
  3. Find a problem people are willing to pay to have solved.
  4. Be committed.
  5. Tap into the entrepreneurial ecosystem of support.
  6. Entrepreneurs will repeat past behavior – show what you have done in the past.
  7. Accept rejections gracefully – you may be back in the future with a better idea.

 

As our economy struggles to recover from the “Great Depression”, raising capital for business growth continues to be an issue.  Our financial system suffered a “heart attack” in 2007 when circulation stopped due to a loss of trust among financial institutions. Those businesses that depended upon borrowed money, such as real estate development, were the first to feel the impact as our economy went into shock and banks canceled lines of credit and called loans to address issues of capital requirements of the banks’ own balance sheet.    

Our recovery continues to work its way out from under the lack of access to capital. Companies now have orders to fill, employees to hire, and material to purchase.  There are encouraging signs in the increasing demand for temporary and permanent workers through employment agencies as fears of a “double dip” recession diminish. So, take heart. In past economic recoveries, these employment trends are the first signs of better times ahead.