Raising venture capital for a start-up for the first time seems to be a daunting task. It takes a lot of time to get all the necessary information together, ensure it is as detailed as possible, and present it in such a way that it makes potential investors enthusiastic.
Here are some essential tips to help you get started.
The first thing you need to do before even attempting to raise your first VC fund is to be sure you are ready. You will probably only get one shot, so it would be a complete waste of time if you don't put in the work and are not ready to deliver.
Before you consider the venture capital route, surround yourself with a reliable team, a viable team, filled with people with strengths that you do not possess. Another bonus would be a product or appealing intellectual property, a comprehensive business plan, and have made some progress on your own.
Set up an advisory board
Your founding team is responsible for delivering your product or service as presented to your VC funders. Setting up an informal or formal advisory board is an ideal way of giving your team support. Advisors can be others in your industry, family members, acquaintances, or anyone who has experience pitching for venture capital.
A comprehensive business plan
When approaching investors for funding, you should have a well-thought-through and written business plan. It should contain at least the following:
- A one-page executive summary that captures the essence of your start-up concisely and enthusiastically.
- A well-written business plan is backed up by data and provides a financial model complete with fiscal projections.
- A PowerPoint presentation that is no more than ten slides long and conveys your start-up's exciting story.
- It should transfer your enthusiasm and grab the attention of the VC investors.
Expect due diligence
Investors will want to know as much as possible about you and your team. Ensure you cover your team's experience and skills in as much detail as possible in your business plan. You should also expect due diligence.
Before handing over money for seed funding, you can expect investors to not only do a full background check on you and your team, including contacting references but also Googling you. Google yourself, so you know what they will discover when they do.
Ask for what you need
All too often, start-ups will be ready, they will produce an informative and visually appealing presentation, and they'll have all a great team with all the right credentials. However, out of fear, they'll forget to ask for what they need.
Make sure you include a “Use of Proceeds” slide at the end of your presentation that clearly states how much you need. Included should also be what you need it for and the return on their investment.
Create a list of potential VC investors
With the Internet, you have vast amounts of information at your fingertips, including the names and details of VC firms and potential investors. Plus, there are websites like CB Insights and Crunchbase that can provide you with databases of suitable investors for a nominal fee.
They will help you find investors that are suitable according to geography, industry, and the amount of the investment you're looking for. You can also ask your advisory board for ideas of who to approach for funding. Combine all your targeted investors into a list and track and record your interactions with them.
Decide on a single point of entry
You must ensure you remain disciplined and do not appear desperate and compromise your credibility when approaching potential investors. This means that you should decide on one entry point and introduction per VC.
If you ask more than one person to introduce you to the same funder, you're not going to look very professional. Identify who the right person to speak to and who will do it if you need an introduction. Additionally, if you are approaching directly, approach only one person in the firm.
When calling or emailing potential investors, the person you contact must quickly ascertain what you are asking of them. So they know whether it will be worth their while meeting with you or reading your proposal. Therefore, it is essential that your request is to the point, personal, and makes an excellent first impression.
It is not uncommon for people who are raising funding for the first time, not to follow-up. That can be because they haven't targeted their potential investor list enough. Or have a long list of people they lose track of or because they take a lack of response from the potential VC investor as a “no.”
It is vital to follow-up because it is the only way you will get feedback and, if you have feedback, you will be able to learn from it and make any adjustments for future presentations.
The above points cover the essentials of sourcing venture capital. The most important thing to remember is that the path to success is not a straight line. Some dips, curves, and loops are all part of the process of achieving success. So, if rejected, don't give up. Use what you have learned to sharpen your offering and go out there and try again.