Any great idea can be converted into a successful company, but it needs the right support system. The support system consists of many factors. A company needs an enthusiastic team, a dedicated leader, and of course funds
Many startups turn to venture capitalists (VC) as they can provide all three parts of the support system. Venture capitalists play a key role in transforming an idea into a profitable business. However, seeking venture capitalists can be difficult as it involves choosing a partner that would either make or break you.
What to look for in Venture Capital?
Connections and relationships
Most of the successes that VC’s enjoy are due to their relationships. Who they invest, work, travel, and win with, will explain much more about their success than their expertise and knowledge.
Sometimes, it is important to look into the VC’s successes as most of the time the same people are involved. The extensive network that a VC holds can be the gateway for your startup to exponentially grow.
While many VC’s win no matter if your startup fails or succeeds, you need to have a thorough look at the historical performance of the venture capitalist. This might be the most important due diligence that you can do about the venture capital as it either leads you to success or failure.
Areas of expertise
Many VC’s come from banking or finance backgrounds. They know how to execute trades and make agreements with partners. However, they could have zero knowledge of the latest emerging technologies.
Partnering with a VC who has a say in decision-making but doesn’t understand the area can be a deadly combination. Ask questions and make sure of their expertise.
Strong cultural fit
The culture that most startups create and hold is a powerful tool for success. When seeking venture capital you are bound to give away a portion of your company. In giving away a portion of your company, you are also giving away a portion of the company’s soul.
Choose your investors wisely. Seek investors who are aligned to your startup culture and who can add to it as well.
Seek Invested People
Many times venture capitalists make you an offer, not because of your culture, team, or passion, but rather because you are in an emerging market. The so-called “Hot Deal”.
Managing a startup comes with many ups and downs and having a supportive, passionate, believing investor is vital to making the necessary changes, surviving, and thriving.
What to do when approaching a VC?
Research the venture capitalist
When cold approaching a venture capitalist it is important to do a background check beforehand to see the compatibility of a possible investment. There is no use to blindly shoot your shot with a software-only venture capitalist if you are retail-focused.
By researching potential venture capitalists and identifying who is suitable, you are saving valuable time and resources. It also increases your chances of successfully raising funds.
Make it easy to respond
It is no secret that venture capitalists are always busy with one meeting after another, or traveling from one place to another. When approaching them, be sure to do everything that makes it easy for them to respond to you. That includes giving all possible contact information.
Be specific about your goals
With limited time, many venture capitalists value a straightforward approach. Meaning that you are specific on what you are looking for, what you are trying to accomplish, and why you think they are the right investors for you. It gives the investors a sense of confidence in the entrepreneur as they know that you have done your research.
Provide enough information
The first impression is everything. Leaving a simple message that you have an intriguing idea that might interest investors is not enough. Provide enough information that would give the venture capitalist an understanding of the idea and goal. A simple presentation deck explaining the main business operations will be better than a package of documents explaining every single detail.
There is a reason why the saying “keep your promises” exists. If you promise to reach back to the investor to answer any questions, then do so within the agreed time frame.
Your goal of fundraising for your startup can be cut short if you lose credibility in the investor’s eyes. Venture capitalists are busy with work so, gently follow up, as it can be the key to securing that desired pitch.
What not to do when approaching a VC?
Don’t Small Talk
If you are cold approaching a venture capitalist then don’t try to force a connection. Leave out the usual telesales script and be specific. Spend a finite amount of time wisely and make your case known.
Don’t Beat Around the Bush
Venture capitalists have countless meetings and pitches with startups. With a thorough experience in choosing the right startups, they know when someone starts to create a false sense of urgency or hype around something. Blatantly name-dropping statements without supporting your argument makes investors more cautious of your startup.
Don’t be Secretive
With countless startups approaching seeking fundraising, and with little time to spend on each case, venture capitalists are seeking to gain as much information and understanding of your startup as possible. However, in many cases, startups fear venture capitalists stealing their ideas or giving something away that potentially could create competition. Your secrecy can be the reason why investors are not expressing their interest. Entrepreneurs have to understand that venture capitalists don’t have time to sign countless NDA’s. Investors don’t value the idea because the challenge is the execution.
Don’t be Unnatural
Venture capitalists want to see passion in an entrepreneur, but in the initial approach, there is a need for professionalism. Passion can be expressed when you are speaking about the details and goals of the company.
Being over-the-top or even aggressive in your initial approach can bring out the exact opposite responses from investors. Make your points clear in a professional manner with a slightly passionate tone.
Approaching a venture capitalist can be daunting but keep these tips in mind to increase your probability of successfully catching the attention of possible investors.