In one of our previous blogs, you read about where and when to look for funding for your start-up. One option that came up was venture capital (VC). Although it is a funding method with many advantages, there are some things you need to consider. Finding venture capital can be a real challenge. It takes a lot of time and energy, and the opportunity is not always great. The following tips will increase your chances.
#1. Step up with the right intention
Venture capitalists think it’s important to be able to offer advice, and sometimes ask for a seat on your board of directors. They are not going to take over your company, but they do want to apply their expertise and build up some knowledge within the network. It’s a matter of give and take, but you have to make clear agreements about this. Only engage with a venture capitalist if you are 100% behind them. Of course, keep your eyes open and be especially wary if an investor asks for 51% of your shares. Other important aspects to consider are:
- Is there room for any follow-up funding?
- Does the venture capitalist have a useful network?
- Does the venture capitalist have appropriate experience and provide good advice?
- Is he/she a useful sounding board?
Finding a venture capitalist takes at least several months. But if you can do it, it’s well worth the time investment. Always keep in mind that the growth of your start-up should be the main focus. It helps if you already have concrete plans about what you want to do with your collected money. It helps shape your business plan and it forms a nice goal to strive for.
#2. Spend enough time on your business plan
Make sure you have a business plan that is finished. For example, Volta Ventures gets about 1,500 business plans a year and they’re worked out in detail. Most VCs don’t have time for dreamy ideas. If you don’t have a business plan, you better not waste their time. What should definitely be in your business plan? According to Frank Maene, managing partner at Volta, the following items are absolutely essential:
- Market description: How big is your market and what are the recurring problems?
- Competition & benefits: who are your main competitors and how do you distinguish yourself?
- Your product: the star of your business plan. Think about your audience: do you keep it short and sweet, or is it all about the technical details?
How are you going to make a profit? What value do you offer and who is willing to pay for that value?
- Your go-to-market model: Briefly describe how you plan to go about it.
- The current status of your start-up or scale-up
- Goals & KPIs: what do you want to achieve and how are you going to measure it? Is it the revenue you create? The number of loyal customers? Or the monthly production run?
- Your team. Introduce yourself. VCs do not only invest in your company, but especially in the person behind the company.
- Maybe the most important thing: money! How much money are you looking for? Added to that is your runway: how long can you survive with your current capital?
Tip: You don’t always have to have a revenue model from the beginning. For example, Mark Zuckerberg bought Whatsapp without making any money directly from it.
#3. Be confident
One less fun tip: prepare to be disappointed. The chance that you will bring in an investment is rather small. There are simply so many applications and the fact that the number of start-ups and scale-ups increases every year does not help either of course. At Volta Ventures, for example, the chance of bringing in an investment is less than 5%. But of course, if you don’t try, you don’t win. And if it doesn’t work right away: just stand up again, adjust where it went wrong and continue!
#4. Work on your application, prepare your pitch
It is best to create a powerpoint or PDF for your application. This works fine for the reviewers, but also for yourself. After all, your business plan is a flexible thing. Adapting, say, 20 slides is therefore easier than adapting an 80-page word document.
Know that an investor is not a customer. So don’t give a client pitch, give an investor pitch. Focus less on the ease of use and your sales arguments, but rather on what the investor will gain from it and what the future plans of your company look like.
Getting your foot in the door is a very important step in the process. Several investors prefer to be contacted via proper mail. Write a short and sweet summary of your business that encourages you to open the attachments. It is best to have those attachments in English; that way you show your international ambitions. If you can, use references. That’s the easiest way to get in. When someone from the business introduces you, your credibility increases dramatically. It will also help you get priority over the endless pile of applications.
Finally, don’t be afraid to test your mail more often. Follow up! Everyone gets a lot of mail. There are many applications, but not as much capital available. So make sure you get to the front of the queue. When do you mail? Don’t wait until your product is 100% finished and sealed. Mail when your business plan is more or less ready.
#5. Last but not least…
Watch the show
Okay, this is a joke, but there is some truth to it. The entrepreneurs in the series form a very complementary start-up team: a technically-minded CTO, an Ops (operations) profile who acts as a jack-of-all-trades, a BusinessDeveloper who arranges and fixes, and of course some developers who build the online platforms. The latter may be a little socially awkward. Dream team assured if you don’t know where to start!
To make a long story short: don’t be put off but do prepare well. A lot of time and effort goes into finding investments, but if you succeed it was all worth it. And as cliché as it sounds, even if it doesn’t work out, you’ll learn endless lessons from it.