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Landing seed money – five tips

on May 23, 2011 Source: Kauffman Foundation

It’s too early to say how the healthcare entrepreneur financing marketplace is shaking out in 2011.

Let’s just say that nobody is talking about “irrational exuberance” anymore.

What we do have for a benchmark – and it is an encouraging one – is the 2011 Center for Venture Research at the University of New Hampshire.

In it, the report points out that in 2010, venture capitalists poured $20 billion into 61,900 new U.S. companies. That’s up from $17.6 billion in 2009, with 57,225 startups receiving capital infusions.

It’s hard to say whether the growth in VC funding rates is a temporary spike or is here for the long term.

That issue is out of any fledgling healthcare CEO’s control. What isn’t out of that CEO’s control is how to get a slice of that $20 billion for his or her business.

That’s especially true when you consider that VCs favor certain industries (software is at the top of that list, although healthcare makes the “top five” VC industry targets, according to the Center for Venture Research study).

Consequently, with the capital landscape sparse, but improving, healthcare entrepreneurs need to be as creative as possible to get new funding. The good news is that some ways work better than others. So start your fundraising campaign with these five tips, each of which is specifically designed to get a venture capitalist to sign a big check with your company’s name on it:

Connect with business owners the VC has already funded

In the seed money game, proximity to healthcare startups that already have received funding from a venture capital firm is worth its weight in gold. If you can, leverage your relationship with a healthcare business owner who has already been funded by a particular investor, and arrange for a referral. If you’re not sure which companies a particular venture firm has worked with, check its web site – most provide lists of companies they’ve funded.

Get to know your favorite VCs

You wouldn’t pick a business partner without getting to know every facial tic. So why wouldn’t you do the same for a venture capital firm – which is a close business partner by any definition? When you start to look for investors, make sure you know how they think, and what they want to see and hear from the companies they invest in. Go see them speak, attend the same seminars, read their books and white papers, study their web sites, Google them, and yes, follow them on Facebook and Twitter, if that access is available. That way, when you do get a chance to present, you’ll know what clicks the pilot light on for that venture investor – and you can target your presentation accordingly.

Chase leads that favor the healthcare industry

This may seem like a “no-brainer,” but you’d be surprised how many healthcare business owners chase financing from investors who don’t have a history of funding healthcare startups. If it’s not a family member, friend or business contact, stick to the script, and focus like a laser beam on capital investors who have a track record in the healthcare field. Ask around, do your online research, and narrow the playing field with industry specialists.

Use the summer months for preparation – but not for pitching

Venture capital investors are no different from their Wall Street brethren – they’re not around much between Memorial Day and Labor Day. So why waste your time approaching investors when they’re not likely to respond promptly? Time is a commodity, too, and it’s wasted on prospects that aren’t going to return your calls for three months. Use the summer months to hone your company’s story, gather all the research you need, and practice pitching. Get to know your hard numbers, contact customers who can act as good references, and prepare a demo for clients. Then come September 1st, hit the ground running. Here’s a good sample pitch. 

Leave no stone unturned

Not every investor comes from a classic venture funding field. Business contacts, old bosses, consultants you’ve hired, friends from college, family connections  -- all can lead you to the investor who’ll pour big money into your healthcare startup – or even better, invest in your company themselves. The key is to get the word out that you’re looking for financing, and then start connecting the dots.

For healthcare business owners, the funding climate isn’t robust, but it’s not barren, either. With some good planning, some creative uses of your time, and some old-fashioned networking, you can significantly increase your chances of getting funding – while competitors who stand still will not.

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