Nearly every start-up entrepreneur thinks that he has a great idea worthy of investment. This is not always the case, but even when it is, raising investment money is a long and often difficult process. It takes research, patience and determination. A typical venture capital firm might receive thousands of business plans each year and end up only funding a handful of them. It is, therefore, imperative that entrepreneurs understand the art of pitching venture capitalists (VCs).
Choose the Right VC Firm
Not all venture capital firms are created equal. Finding a venture capital firm that is a good fit with your needs increases your chances of landing funding. This means researching firms before seeking an introduction to them. Narrow the field by sorting firms according to the following criteria:
- Investment level range – some firms will only invest in start-ups that request $1 million or less, while others will only invest in companies requesting $5 million or more, etc.
- Geographical location preferences – many VCs only want to invest close to home
- Industry preferences – some VCs are very specialized and will only invest in certain industries
- Stage of development preference – some VCs prefer to invest seed capital while others only want to invest in the later stages of a company’s growth
Once you have this information, further narrow your targeted group of firms by finding out as much as you can about each one’s leadership team and other projects that it has funded. This can give further insight into whether the VC is a good match for your business.
Set Up an Introduction
Once you have a list of venture capital firms where you think funding success is possible, it is time to actually approach a VC. This is best done through a “warm introduction” via your banker, accountant, lawyer or company that specializes in helping entrepreneurs land investment money. Venture capitalists view entrepreneurs who approach them this way much more seriously than ones who approach them with an unsolicited email or phone call. In fact, most unsolicited emails and phone calls go unanswered. A warm introduction lets the VC know that you know how the venture capital process works and helps establish your credibility. Ensure that the person who is introducing you is well prepared and ready to promote your project with the venture capital firm.
Establish Contact with the Venture Capital Firm
Venture capital firms look for a talented management team, a large potential market and a unique product or service with a competitive edge. If your project meets these criteria, then the chances are good that the VC will want to see your pitch deck and then meet with you. A pitch deck is similar to a business plan but is an easy-to-read, graphically-based presentation, usually in Powerpoint form. Ensure that your pitch deck is as polished as possible and clearly outlines the business, the market, the product or service and the management team. Make your business easy to understand.
Meet with the Venture Capital Firm
After some back and forth contact and if the VC sees some promise in your idea, then the firm will want to meet with you. Be ready to give a formal presentation and answer all questions right then and there. Keep in mind that the VC will be evaluating you and your team as much as the project. A good first impression is important. Venture capital firms are made up of partners. At the end of the meeting, your project has to excite at least one of them or you will not have much chance at securing funding.
Receive a Term Sheet
After the initial meeting, the partners will discuss your proposal, analyze the market, evaluate your team and more. Then they will usually vote on your project at a partners’ meeting. If they vote to proceed, then they will send you a Term Sheet. This document outlines the investment’s governing terms and usually covers the company’s valuation, investor rights, board make up, voting rights and more. You will have to supply financials, contracts, employment agreements and other pertinent information. The idea is to get all ducks in a row before signing final papers. If everything looks in order, then the VC will draft formal documents and issue funding.
If you are seeking venture capital for your start-up, then contact us. Our experienced professionals will guide you through the art of raising investment money. We have helped all sorts of entrepreneurs get funding. We can help you, too.