Venture capital is financing for startups and businesses from investors, investment banks or any other financial institutions. They usually are capital invested into high growth, high-risk companies. To compensate for higher risk, venture capital investors (VCs) expect a large return on their investment, higher than a bank would expect. Also, in exchange for their investment, VCs usually get a partial ownership in your company, called equity, and some measure of control over decision-making.
It can be very challenging to raise capital until you have a team established and a company that has a product and some traction. So it is important to learn how to bootstrap to begin. Bootstrapping simply means to run your business using currently existing resources and without outside funding. Normally, generating revenue for your startup without much help from outside capital is hard. If you are stumbling at this phase, don't worry, it is normal. There are millions of people with great business ideas, but only 10% succeed.
Regardless of where you seek capital, a rule of thumb is to not give away too much equity of your company. Once you give away more than 50% of your company, you no longer can control the direction of your company and you become an employee. What is the point of forming your own business when you are going to become an employee?
Don't Talk to Everybody
Contrary to popular belief, it is not wise to pitch to anybody who will listen, though it is understandably difficult to say no to meetings especially if they namedrop the companies they invested in and you really want to meet them. Just tell yourself that your time is just as valuable as the VCs, and you should only meet with VCs who specialize in your field or are people who you trust. This is a true story: our friend who was doing an ed tech company went around and pitched their short pitch to everyone. A sneaky VC invited them to come back for a longer more formal pitch, and deployed their idea and business plans to a startup that they had invested in earlier. Our friend who pitched had to pivot in order to survive. That is an extreme example of not pitching to everybody, but just be cautious.
It is also critical to identify the right partner to pitch to within a VC firm. Every partner has different investment interests, styles, and seniority within the the firm. Start by targeting ones who are most likely to be interested in your company.
Research, Research, and Research More
Pitching to investors involves making a personal connection and telling a story they can relate to from their own investment experiences. A successful pitch is not only about the idea; it is about helping the investors to see your vision, size up the market, and most importantly, foresee a profitable business model. Assuming you already know everything there is about your industry, make sure you thoroughly research you will be speaking to so you can identify ways to connect on a personal level.
Have a Go to Market Strategy
If you are raising capital, it is likely you are planning to grow your market footprint. You should have a plan for how you are going to get in front of a lot of new customers and sell to them.. Where and how do users currently buy? How are you going to get in front of a lot more of them cost-effectively? How will you get them to buy? How long will it take for them to buy? What price will you sell your product but at a good profit? All of this will help you with your financial forecasts to estimate how much you need to be fundraising.
If you are in the market to raise capital, contact us! We have many investors in our network and might be able to help point you to the right direction.
Related: How to Test Your Startup Idea in a Coworking Space