Venture capital investments are on the rise

For the first time since the Internet bubble burst, venture capitalists have increased their rate of financing small businesses. Over 20 billion dollars in venture capital poured into small businesses in 2004. While that's a lot less then the 106 billion invested in 2000, if your business needs an influx of capital a small slice of what's available wouldn't hurt. Here are some tips for getting some of that money into your business.

Equity Versus Debt Financing for Your Small Business

To attract financing for your small business it's important to maintain a low debt-to-equity ratio. In plain terms, that means as the owner(s) you invest a lot more money into your business than you borrow to run your business. Venture capitalists are a pretty straight-forward group. If your business isn't good enough for your money, it's not good enough theirs either.

Your Small Business Will Be More Likely to Recieve Financing If Its In a Strong Industry

If your business is in the high-tech sector, your chances of attracting financing are much higher than, say the snack-food company. If you have the manufacturing capacity, consider adding computer chips, potato chips and C.H.i.P.s memorabilia to your product line. Hire Erik Estrada to endorse all three. By diversifying one of your product lines might find itself in a strong industry. A venture capitalist that enjoys eating junk food while watching old T.V. shows on his PC might stumble across your small business as well. If you're not prepared to diversify your small business into more attractive industries, don't worry. There are still some other factors that financiers consider before laying down their millions.

Investors Prefer Businesses in Their Third to Fifth Year of Operation

The notion that venture capitalists sneak around dormitories hoping to pour millions into the next pair of computer geeks with an original idea is indeed false. Private investors prefer young yet established companies with the potential to become even more. Venture capitalists do play a high-risk game but they still prefer to increase their odds any way possible. Start-ups are risky and unstable and the irrational exuberance of the late nineties has past. Small businesses with proven system of management are an absolute must.

Unless you're developing time machines, your business isn't going to stay at the three to five year mark. What you can do however is pursue effective management and research untapped markets. Maintaining a competitive advantage over your respective industry will inspire venture capitalists to hand over the cash faster than being the right age.

Venture Capitalists Scrutinize Thousands of Potential Small Businesses to Finance Each Year

Don't bother calling every big venture capitalist you see on CNBC. If your small business has the potential for a public stock offering in the near future, you will be noticed. However, after checking the list above is it any wonder venture capitalists only invest in a handful of companies each year.

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