No one is an expert in everything, but I am confident that I do know a thing or two about venture financing.
I’ve been on the fundraising side of the table eight times during my career, raising over $175 million in venture capital, not including mergers and acquisitions, and an initial public offering. There are quite a few points I could cover — I could write a small book on the topic — but I’ll distill the capital raising process down to a few key tips.
First and foremost, have a plan. Don’t just start searching Google and making phone calls. Tackle this process like any successful salesperson would approach a new prospect: Do your research, have a plan and don’t waste time on VCs that will never invest.
Here are 10 tips to help you find the perfect VC partner:
Do your research. Make sure a firm invests in companies within your industry. Be certain that the amount of capital you need to raise matches the typical investment size of the firm.
Understand the size of investment the venture firm typically makes. Different VCs have different investment profiles that roughly breakdown by both growth stage of your company and dollar amount to invest.
Understand how old the firm’s current fund is. You want to find a group that’s in the first three years of its most recent fund. Typically, new investments are made in the first three to five years and the rest of the fund is saved for follow-on investments in the portfolio.
Have a thick skin. You’re going to hear more criticism than ever before. Rather than take criticism personally, however, you must learn to process it.
VCs are hard to reach. If you do not have a prior relationship, or someone who can make an introduction, tenacity is just part of the process.
Reputation matters. Some VCs will tell you status, prior history and pedigree don’t matter, but they do. Each one, however, can be overcome with persistence, the right personality and, most importantly, a good investment opportunity.
Don’t get discouraged. If VCs don’t get your idea or don’t think you have the talent, listen and learn from their critique in order to improve for the next pitch. Try to put ego to the side for a moment and unbiasedly evaluate if they had any good points, then work to fix them.
Ask questions upfront before you ever get to the pitch. How old is your fund? How big is the fund? How many investments have you made? What is your average investment size? How many boards do you sit on? On what industry sector(s) do you focus? The answers will provide insight on how to adjust your pitch.
Make no mistake — you are selling. This is selling at the top of its game.
Don’t get hung up on valuation. If you’re going to raise VC, sooner or later you’re going to give up control of your company. Get over it. ●