Step 1: Business Plan Submission

The first step in approaching a VC is to submit a business plan.  At minimum, your plan should include:

• a description of the opportunity and market size;
• resumes of your management team;
• a review of the competitive landscape and solutions;
• detailed financial projections; and
• a capitalization table.

You should also include an executive summary of your business proposal along with the business plan.

Once the VC has received your plan, it will discuss your opportunity internally and decide whether or not to proceed.  This part of the process can take up to three weeks, depending on the number of business plans under review at any given time.

Don’t be passive about your submission.  Follow up with the VC to check the status of your proposal and to find out if there’s additional information you could be providing that might help the VC with its decision.  If you are asked for further information, respond quickly and effectively. If possible, always try to get a face-to-face meeting with the VC.

Keep in mind that most VCs receive an average of 200 business plans each month.  Of those, less than five percent will be invited to meet with the VC’s partners.  Just two percent will reach the due diligence phase, and less than one percent will be offered a term sheet.  Some 0.3 percent of those submitting a business plan will ultimately obtain VC funding.

**The overwhelming majority of successful proposals come from a trusted referral of the VC, such as a limited partner, another VC, a known attorney or accountant, or other professional.  If you can get your business plan referred by such a contact, you dramatically increase your odds of succeeding in getting VC funding.

Step 2: Introductory Conversation/Meeting

If your firm has the potential to fit with the VC’s investment preferences, you will be contacted in order to discuss your business in more depth.  If, after this phone conversation, a mutual fit is still seen, you’ll be asked to visit with the VC for a one- to-two hour meeting to discuss the opportunity in more detail.  After this meeting, the VC will determine whether or not to move forward to the due diligence stage of the process.

Step 3: Due Diligence

The due diligence phase will vary depending upon the nature of your business proposal.  The process may last from three weeks to three months, and you should expect multiple phone calls, emails, management interviews, customer references, product and business strategy evaluations and other such exchanges of information during this time period.

Step 4: Term Sheets and Funding

If the due diligence phase is satisfactory, the VC will offer you a term sheet.  This is a non-binding document that spells out the basic terms and conditions of the investment agreement.  The term sheet is generally negotiable and must be agreed upon by all parties, after which you should expect a wait of roughly three to four weeks for completion of legal documents and legal due diligence before funds are made available.