When launching a new small business, the entrepreneur will often consider venture capital as a source of funding. Here are 3 tips to ensure VC funding can be secured when submitting your business plan:

1. Send your business plan to the right people

Venture capitalists tend to specialize in certain types of businesses. Some will specialize by industry, investing only in energy startups, for example, while others will look for a certain size of company to invest in. It’s worth doing some research to determine who the venture capital sponsors are for your industry, before you start submitting your business plan. Venture capitalists who are not specific to your industry can provide recommendations to make your plan more attractive to other venture capitalists. However, it would naturally be a mistake to send your plan to potential investors who won’t even consider it.

2. Make sure your business has the potential to be profitable enough

Most venture capitalists look for a return of around 5 to 10 times their initial investment. For example, a $2 million investment in a company should generate a return of $14-20 million after about five years. To satisfy these requirements, it is generally necessary to have a business that has the potential for a high rate of return on the amount invested. If the rate of return can reasonably be expected to be lower, as in the case of a clothing retailer, it is probably best to look to an alternative source of financing, such as a commercial or investment bank.

3. Remember to include an exit strategy for your investor

Venture capitalists generally do not want to be involved in a new company for an indefinite period of time. Most plan to leave the new company after about five years, so you need to offer a clear explanation of how this can be accomplished. There can be a variety of reasons for this; some venture capital managers require holdings to be sold periodically to acquire other offerings. However, by showing that you understand the limited time frame for many venture capitalists, you automatically make your plan more attractive than those who don’t.

In short, by getting your business plan out to the right people, recognizing what rate of return is necessary for VC involvement, and including an exit strategy, you can improve your chances of getting VC funding for a new and growing business.