The process of seeking venture capital can be complicated and intense. It consists of a series of escalating milestones that your business will have to achieve. These typically occur over several months, but with certain high-growth businesses, they can occur over a matter of days or weeks. Review the steps below to familiarize yourself with each stage of the process so you can successfully address each test:

Business plan submission

The first step to generating interest in your startup is forwarding appropriate documents to venture capitalists. Each VC has different requirements for items to include. In general, most want to see your business plan’s executive summary along with a brief (15-slide) presentation. If these documents are of interest, they will ask to see a complete plan. Consult each VC’s Web site to find out which items it wants to see, and follow its guidelines to the letter.

First meeting

If your plan appeals to a VC partner, you’ll be invited to make a pitch in person. This meeting is likely to be attended by one partner, and perhaps a few lower level staffers. Expect it to last about an hour or two. Schedule your presentation for half of the allotted time, and leave the other half open for questions.

Due diligence

If a VC is interested in the pitch you present, partners will begin calling your references. This is a very good sign, since it means they want to verify that what you’ve presented is, in fact, true. Follow up with your references to find out the questions that were asked and the level of interest the VCs conveyed. Were they searching for reasons to fund you or looking for reasons to pass? Did they raise any specific issues, and if so, what were they? You will need to prepare to tackle these objections in future meetings.

Second meeting

Having conducted the due diligence, the partner may invite you to a second meeting. Expect this session to focus on any questions that arose during due diligence. This is not your time to pitch your project, but a time to defend any claims you’ve made about the market, your product/service, your management team, etc.

Full partner pitch

If you get to this stage, your project is under serious consideration by the investor. The original partner now supports your startup and becomes your sponsor to take it to the whole firm. Before you go to this meeting, ask the partner sponsor if there are unresolved issues or potential sticking points you should address. Once the meeting is over, get feedback from your sponsor to see if a term sheet will be coming.

Term sheet

A term sheet offer means success. This is the document that outlines how much the VC is willing to invest in your company, and what it wants in return. The term sheet is not a final document, but the beginning of a negotiation process. Be sure to have an experienced lawyer representing your cause during this phase of the process.

Syndication

Depending on the VC firm and other variables, it may be necessary to find co-investors to share the risk of investing in your venture. This can be a quick process, but in some cases may lead to an additional cycle of pitches. Much will depend on whether your VC works regularly with other firms, and what those firms’ requirements are. Many VCs post information about their investment partners on their Web sites.

Closing

You might think of the closing as a formality, but many deals have fallen apart at the last minute because of points raised here. You’ll learn a lot about your investor during this process. If the closing is antagonistic, it can be a sign of the tenor of your future relationship, and you may want to reconsider taking this investor on as a partner. Again, have a good attorney available, and keep yourself focused on your ultimate goal – closing the deal.

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