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A venture investor scrutinizes between 20 and 25 proposals before ending up funding a deal. This is because he is on the quest of the 'quality deal'. The views of the promoter and the venture investor on the 'quality deal' differ diametrically. While the venture investor judges the "quality" of the deal in relation to the other available deals, every promoter feels that his deal is that 'quality deal'.

This article attempts to explain this fundamental point and addresses issues that will help a promoter to position his deal strategically and improve his odds of closing out the funding transaction.

Most venture investors focus on companies that are located in the immediate neighborhood. An often-repeated statement in the investors' circle is 'if it takes me more than an hour to get to the company, I am not interested'. This is because early stage investors work very actively with the management team till the operations reach a critical stage. The exercise of building a company is time consuming, and nothing is gained by wasting time in commuting.

The odds of raising early stage funding from venture investors located in the neighborhood are far brighter than distantly located ones. Conversely, other things being equal it would make sense for a start-up to locate its operations in a close proximity of investors specializing in start-up companies.

While short listing an investor, it is essential to understand his investment philosophy. Some venture investors like to create huge companies and will accept a lot of big strikeouts. In their search, they take higher risks, but end up building huge companies that earn substantial returns. These investors focus on doing a handful of large deals. Other venture investors like to create smaller but solid companies, and are relatively conservative. They focus on building these companies to a critical size and exit with fairly decent returns. They work on larger number of deals.

A promoter has to ascertain the investors' philosophy and their chosen area of specialization and decide on whether the deal would make a right fit for the investor or not.

The timing of the fund raising exercise is very critical. Ideally, this is done after the start-up has achieved a significant value-added step. Increments in value accrue from management team recruitment or technology development or market verification.

The promoter should also be in a position to define the next set of milestones to be achieved with the completion of the current fund raising. Linking the fund raising to these factors aid the promoter to hard sell his deal. It also enables the venture investor in making decision based on tangible factors.

The promoter should try and avoid the usual holiday seasons as the approval process could get delayed due to the absence of members of the investment committee.

Most venture firms have a prescribed formula for approving investments. Usually an investment committee approves the proposal. While some require a unanimous consent of the committee, the others a majority consent. Occasionally a partner may have funds to invest at his sole discretion. But the approval of one partner may not always make the deal happen. The permutations and combinations vary.

It is necessary for the promoters to understand the nitty-gritty of the investment process and the time consumed in this process. This would enable him to plan, strategize and schedule his fund raising exercise, apart from deciding on the suitability of an investor.

In India, a venture investor receives in excess of 20 proposals a month. Apart from scrutinizing potential investments, the investor works on due diligence for new deals and monitors the existing portfolio companies. The investor is left with little time to review business plans thoroughly. It is here a referral from someone who has a relationship with the investor counts. The referral could be from a CEO or senior executive of an existing portfolio company, an attorney or even another venture capitalist.

It would be prudent for the promoter to establish a good referee for the investors he is targeting. A good referral would ensure a prompt and detailed attention being paid to the proposal at minimal efforts.

Normally it is one partner who champions the investment proposal. He and his team work on all the aspects of evaluation and appraisal and prepare the information memorandum for approvals. The other members go by his call. The championing partner circulates an executive summary of the proposal among the members to get their feel of the proposal. And, it is here most proposals make or break.

As all the decision-makers read the executive summary at length, so due care must be taken to make it comprehensive and yet compact. The executive summary is the promoter's main sales implement to capture and hold the attention of the decision-makers.

Investors invest in promoters and management with proven motivation and bandwidth to build companies. They believe that the right management team maximizes the opportunity. Investors like to ensure that the team has the experience and competence to execute the plan and make changes or take hard decisions to get the business on course, when necessary.

Having a competent team in place improves the odds of success. If the team is in the process of being built, the promoter has to demonstrate unambiguously the profile of the team members and his ability to attract the best talent. Defining the time lines for such recruitment together with a sound logic would make for a stronger case. It is the promoter's responsibility to build or convince the venture investor that he has it in him to build a team that can deliver on the plan.

Fund raising is a time consuming process. The promoter has to strike a right balance between devoting time to raising funds and managing the normal work schedules.

Positive developments in the form of the recruitment of a key management professional or a new customer or a sales order, or completion of a key testing process or a strategic alliances go a long way in building the confidence of the investor and validating the business plan. Such good developments enhance the probability of closing a deal faster.

It is preferable for a promoter to work with two or three similar investors concurrently. This approach helps the promoter manage his time on raising funds efficiently and also improve his chances of closing out the transaction. He also gains a deeper perspective on the project from the investors' angle. It opens a window for co-investment and goes on to serve as a confidence booster for the different prospective investors. It also creates a healthy rivalry among the investors and works to the benefit of the promoter.

The start-ups' ongoing requirements and expectations of value addition from the investors also hold a key towards quick and successful fund raising. Apart from financing, the investors offer assistance in developing strategies for the products, marketing and regulatory issues. They also make significant contributions in the identification of suitable professionals, future financing and negotiation strategies. Most investors act as a good sounding board on operating and management issues.

It is vital for the promoter to select an investor who could meet these expectations to the best possible extent.

It is important for the promoters to focus on firms that routinely fund start-ups, as they are clued on to tackling issues that a start-up encounters on its path to commercialization. Almost all investors want one of their nominees on the board of directors. Hence it is preferable to work on the personal chemistry.

Finally, just as the investors check on references to qualify the promoter's strengths, shortcomings, competence and integrity, it would be apt for the promoter to do a similar check on the potential investor by speaking to companies that have been funded by them.

The author has been a professional in the private equity industry. He can be reached at feedback@strategemadvisors.com