Top 10 Must-Knows for Raising Venture Capital (Don’t Miss #3!)
For early-stage companies and entrepreneurs just starting out, securing fundraising is key. At the same time, the process of scoping out investors and pitching business plans to venture capitalists can be overwhelming, daunting, and downright exhausting. Founders of start-up companies, however, can benefit from keeping some key venture capital investing and fundraising insights in mind.
We sat down with Mark Peter Davis, Serial Entrepreneur and Managing Partner at Interplay Ventures, to get his insights on the fundraising process. Mark has spent over a decade in the New York startup and tech community and have made investments in companies such as Warby Parker, Coinbase, and Mohawk, and has written a book on venture fundraising, “The Fundraising Rules”. Here are the key pieces of advice from Mark Peter Davis on navigating the fundraising process.
Scoping Out Potential Investors
The first step in the process, of course, is to scope out potential venture capital investors. The good news for early-stage companies is that venture capitalists are much more accessible today than they were a few decades ago, giving founders much more to work with in terms of opportunity. In addition, there is a significant amount of capital floating around, waiting to be put to use.
1. Start With a List of 20
For most companies seeking to fundraise, it's good to start with a list of about 20 potential investors that you can work with at any given time. This is a manageable enough number for most companies and gives you the opportunity to filter new opportunities (much like a revolving door) as you get a few "no" responses along the way.
2. Remember: Quality Over Quantity
As you seek our potential investors, keep in mind that quality should be prioritized over quantity. Take some time to go through the portfolio companies and databases like Crunchbase to really figure out whether or not a venture capital group’s investment needs and recent deals align with your goals. Ultimately, you only want to approach those who can offer not just financial support, but problem-solving, advice, and everything in between.
Building Your Materials
The materials you send over to potential investors will make a huge impression, so of course, you want to get them right. There are a few things worth keeping in mind along the way, of course.
3. The Biggest Mistake
While it's obviously important to have a business plan, sending over this document blindly to a potential investor is one of the biggest mistakes early stage company founders make. You want to show that you value a venture capitalist's time, and few things are more of a time sink than expecting them to read through an entire business plan.
4. Focus on an Executive Summary
Instead, you'll be better suited to send over an executive summary that is no more than one page long. This shows the venture capitalist that you respect their time enough to get to the point and send over information that's as concise as possible. And in reality, most experienced venture capitalists won't need more than a page to determine whether or not they're interested in funding your project.
5. A Word of Caution About PowerPoints
Attaching a PowerPoint may make sense in some scenarios, but it's important to consider the content. If your PowerPoint is more of a standalone document, where it can be understood on its own, that's one thing. On the other hand, if your PowerPoint is mostly visuals and keywords that require context (such as an accompanying presentation) to understand it, then it's better to forego this and not waste your venture capitalist's time.
Venture Capital Meeting Mistakes to Avoid
So, you've landed a meeting with a potential investor and you're ready to knock it out-of-the-park. Be careful, though. There are a few common mistakes you'll want to avoid that could cost you a deal.
6. Asking VCs to Sign an NDA
Asking a venture capitalist to sign a non-disclosure agreement, either in your email pitch or in-person, is generally considered a cultural faux pas these days. Just don't do it, unless you have a lawyer telling you it's an absolute must for your situation.
7. Not Keeping it a Human Experience
One of the most important things to keep in mind when pitching to a venture capitalist in-person is to keep it as much as human exchange as possible. At the end of the day, you're there to discuss your business. Reading word-for-word off a PowerPoint slide like a robot is not going to make a good first impression. Keep it relaxed, get your points across, and open things up for questions/comments and you'll be golden.
8. Bickering With Team Members
If you're pitching with another founder or team member at your side, keep in mind that few things are bigger "red flags" to a venture capitalist than a team that bickers, argues, or doesn't seem to be on the same page during the presentation.
After the Term Sheet
While there's a long road between pitching to an investor and potentially receiving a term sheet, if and when that time comes, there are some additional tips to keep in mind.
9. Use Your Leverage
Remember that once you have that term sheet in your hand, you now hold the majority of the leverage. Don't rush to sign anything or make any rash decisions. Slow down and keep the possibility for negotiations open.
10. Ask for Help and Guidance
One of the best things you can do, before signing a term sheet or asking for further negotiations, is to grab an experienced coach or mentor to help you through the process. From selecting the structure of your deal to deciding on governance, valuations, and equity, there are many important decisions to be made that can affect both your short- and long-term outcomes.
Unfortunately, the odds are not in your favor when seeking to fundraise for an early stage company. Still, by keeping these insights and strategies in mind throughout the process, you'll be more likely to reach long-term success with a venture capital investor that's right for your company's unique needs. And while there’s more than one way to bake a cake, and venture capitalists come in all shapes & sizes, there’s an art to the fundraising process and you need to know how to play the game. Any sign that you don’t know the rules of engagement will put you at a significant disadvantage.
*You can catch the full interview with Mark Peter Davis here
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