Considerations When Seeking Venture Capital
Probably the most important thing when seeking venture capital funding, as with any other type of funding is to show at the right places where “seekers are seeking”. In other words, you need to get in front of venture capital firms.
Asking for money is not easy. If you think this is hard, try writing a check to someone who wants to use your money to build his dream. That is why when you ask for money you need to be very well-prepared and ready to answer tough questions.
Once you think you are ready with all answers and feel that you know your business better than the person who will write the big check to you, start looking for ways to be introduced to the venture capital firm you are interested in. VC firms rely heavily on verified recommendations and connections to select deals to invest in.
The general perception is that you need to meet with as many investors as possible to increase your chances to get funded. This may be true, but if instead focus on fewer VC firms that fit better your industry and come with experience in your market, chances to find like-minded people who are willing to help you increase dramatically.
You don’t want to be in a situation where you are pitching your idea for a new rocket propulsion system to a VC firm that invests in retail businesses. It will most likely be waste of time for you and the VC.
Look to be introduced to someone from the VC firm who is still relatively early in their career at the VC firm. Such people are still very eager to get deals done and are open to new ideas. In many cases that person can even help shape your pitch to better present your idea tot he senior partners at the venture capital firm.
The better your vision, product, market, and the team are aligned with the profile of the types of investments this venture capital company makes the higher the chances for you to walk out with a check-in your hand.
Most VC firms have a well-documented process, available to founders should they desire to prepare to pitch to them.
Simply put – make sure you have an ally in the company and they know you before you pitch.
Pitching To A Venture Capital Firm
Make sure you know what the VC firm expects. Work to adjust what you want to say to what they want to hear.
In many cases, communication starts with an email. This is an important detail because you want to make sure your email will be seen and not filtered into the junk folder.
Big attachments, long emails, unclear positions, vague ask (to meet) are sure bets for your email to be overlooked or simply deleted.
Ideally, you would send a well-prepared introduction with links to an executive summary and a pitch deck. It is always better to provide online profiles than to send big attachments.
If asked to send your executive summary, make sure you limit it to 2-3 pages with all the important information in it – problem, solution, market size, competition, financials and projections, and your management team.
The executive summary is not a presentation or slide deck. It is in narrative form and the goal is to walk the reader through your business.
Your pitch deck can be seen as an extended version of your executive summary and also as a summary of your business plan. Each of the slides is a bullet point in explaining how you going to make money in a huge market by solving a well-defined problem with your proposed solution.
If your documentation and email or another form of contact you have invented managed to get you in from of the venture capital company to pitch, consider yourself one of the few winners. It is really hard to get the attention of a VC and the fact you are invited to pitch should already show you that your business is sound and has potential.
More often than not, founders make the mistake to rush through the pitch presentation, trying to show everything in their presentation in the hour dedicated to their meeting.
Before jumping to your presentation, you will need to establish who you are and why your team is a good choice. This will help to establish trust before you even start with the pitch and your ask.
Be the leader of the presentation but let the investors dictate how the presentation will go. If they are interested more in one area of your pitch, dive in and show all your genius in that area. Interest is better than being indifferent and shows they really want to know more about what you offer.
You need to be prepared with a business plan. VC firms rarely ask for one these days, but you can be sure that all aspects of a business plan will be covered in this meeting(s). Having one is only going to help you to be prepared for all questions that you will be asked. And in the noise of so many startups demanding the VS’s attention, one with a business plan will definitely stand out.
Financials of your business proposal will be the main topic of your pitch. You need to know if your estimations for growth is in line with the venture capital expectations. This is part of your homework before pitching.
Investors look for sizable ROI and they will be looking to see your four-year projections when you plan to break even and most importantly – what is your exit strategy. Your plan needs to show a good return and well-defined path how investors will get their money back with a sizable profit.
Due diligence process
If the venture capital firm is really interested in your idea and sees it as a potentially interesting and profitable investment, they will start their due diligence process.
This is good because it shows you have a real chance of getting funded. If your numbers and projections hold. That is why having a sound business plan is a good idea; it makes you ready to answer detailed questions about your business.
During the due diligence process expect your business model to be reviewed, your financials, predictions, some venture capital firms may interview your team to make sure you have the right talent in place.
You will need to show all of the research you have done in terms of marketing, market size, customer segments, growth potential, expenses, etc.
Everything you said during the pitch meeting must check out.
Getting Venture Capital
Start with defining which venture capital firms are a good fit for your industry, market, and business model. This is important because your chances are much higher to get funded by like-minded people.
Find a way to connect with and be introduced to the company before you start your communication with it and request for a pitch meeting.
Understand the investment process and requirements for the venture capital firms you plan to present your business to.
Prepare the documents that are required by the venture investor and be ready with your executive summary, pitch deck, and ideally have your business plan handy, so you can review it and prepare for the meeting.
Make sure all you say and present during the meetings check out. The due diligence process is part of any funding and it will be a deal-breaker if the investor discovers discrepancies in your plan and the reality.