The biggest roadblock to entrepreneurship is financing. Banks usually are not receptive to funding unproven new ventures, especially for someone without a track record. Given that most would-be entrepreneurs have limited resources from which to draw, where are they to get the financing needed? Venture capitalists may be the answer.
Venture capitalists are wealthy individuals (or firms) looking for extraordinary returns for their investments. At the same time, they are willing to take substantial risks. Backing nascent entrepreneurs in speculative undertakings can be the route to a far greater return on investment than possible otherwise—provided that the venture capitalist chooses wisely who to stake. This decision is much easier after a fledgling enterprise has a promising start. Then venture capitalists often stand in line for a piece of the action. But until then, the entrepreneur may struggle to get seed money.
For a would-be entrepreneur seeking venture capital, then, the most important step may be in selling yourself, in addition to your idea. Intellectual honesty is sometimes mentioned by venture capitalists as a necessary ingredient. This may be defined as a willingness to face facts rigorously and not be deluded by rosy dreams and unrealistic expectations.
Those who win the early support of venture capitalists will likely have to give away some of the ownership. Should the enterprise prove successful, the venture capitalist will expect to share in the success. Indeed, the funds provided by a venture capitalist may be crucial to even starting, and they may mean the difference in being adequately funded or so poorly funded that failure is almost inevitable.
Selling a definitive business plan to a prospective venture capitalist is usually a requirement for such financing. In the process, of course, you are selling yourself. You may want to do this exercise: Choose a new business idea, develop an initial business plan, and attempt to persuasively present it to your class of would-be investors.